Deviations From Norms and Informed Trading

62 Pages Posted: 21 Mar 2011 Last revised: 16 Oct 2012

See all articles by Alok Kumar

Alok Kumar

University of Miami - Miami Herbert Business School

Jeremy K. Page

Brigham Young University

Date Written: October 24, 2011


This paper proposes and tests the conjecture that sophisticated individuals deviate from established personal and social norms only when the perceived benefits are sufficiently large. We apply this broad idea to the context of institutional investing and predict that norm-constrained investors deviate from norms when they have compelling information. Consequently, they should earn higher abnormal returns from those investments. We test this prediction using norms against gambling and holding "sin" stocks. Consistent with our conjecture, we find that when gambling-averse institutions invest in lottery-type stocks, they earn higher abnormal returns on their lottery stock holdings, outperforming the holdings of gambling-tolerant institutions. Similarly, institutions that are averse to holding sin stocks earn higher abnormal returns on those they choose to hold. Overall, these results indicate that deviations from established social norms can be used to identify informed investing.

Keywords: Institutional investors, informed trading, investor tastes, skewness, gambling, sin stocks, social norms

JEL Classification: D14, G11, G14

Suggested Citation

Kumar, Alok and Page, Jeremy K., Deviations From Norms and Informed Trading (October 24, 2011). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming. Available at SSRN: or

Alok Kumar

University of Miami - Miami Herbert Business School ( email )

514 Jenkins Building
Department of Finance
Coral Gables, FL 33124-6552
United States
305-284-1882 (Phone)


Jeremy K. Page (Contact Author)

Brigham Young University ( email )

Marriott School of Management
685 TNRB
Provo, UT 84602
United States
801-422-7173 (Phone)


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