Mutual Fund Trading Pressure: Firm-Level Stock Price Impact and Timing of SEOs

47 Pages Posted: 8 Jul 2011 Last revised: 19 Jul 2013

See all articles by Mozaffar Khan

Mozaffar Khan

Causeway Capital Management, LLC

Leonid Kogan

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

George Serafeim

Harvard University - Harvard Business School

Multiple version iconThere are 2 versions of this paper

Date Written: 2012

Abstract

We use price pressure resulting from purchases by mutual funds with large capital inflows to identify overvalued equity. This is a relatively exogenous overvaluation indicator as it is associated with who is buying, buyers with excess liquidity, rather than what is being purchased. We document substantial stock price impact associated with purchases by high-inflow mutual funds, and find the probability of an SEO, insider sales, and the probability of a stock-based acquisition increase significantly in the four quarters following the mutual fund buying pressure. These results provide new evidence that firm managers are able to identify and exploit overvalued equity.

Keywords: SEO, Market Timing, Price Impact, Trading Pressure, Mutual Fund

JEL Classification: G10, G11, G12, G14, G23, G30, G32

Suggested Citation

Khan, Mozaffar and Kogan, Leonid and Serafeim, George, Mutual Fund Trading Pressure: Firm-Level Stock Price Impact and Timing of SEOs (2012). Journal of Finance, 67, no. 4: 1371–1395. Available at SSRN: https://ssrn.com/abstract=1881726

Mozaffar Khan (Contact Author)

Causeway Capital Management, LLC

Leonid Kogan

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
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Cambridge, MA 02142
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HOME PAGE: http://web.mit.edu/lkogan2/www/

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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George Serafeim

Harvard University - Harvard Business School ( email )

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Boston, MA 02163
United States

HOME PAGE: http://goo.gl/q4cJ5A

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