Short-Term Trading and Stock Return Anomalies: Momentum, Reversal, and Share Issuance

Abstract

This paper examines how the extent of short-term trading relates to the efficiency of stock prices. We employ a new duration measure based on quarterly institutional investors’ portfolio holdings, next to existing proxies such as trading volume, the percentage of transient institutions, and fund turnover. Momentum returns and subsequent returns reversal are generally much stronger for stocks held primarily by short-term investors, especially if these investors recently had superior recent performance which could make them overconfident. Our results point towards the behavioral theory in Daniel, Hirshleifer and Subrahmanyam (1998) and seem inconsistent with short-term institutions improving efficiency.

The appendices for this paper are available at the following URL: http://ssrn.com/abstract=2464597

Keywords: stock holding duration, return anomalies, institutional investors

JEL Classification: G12, G14