How Does the Investment Horizon of Institutional Investors of a Firm Affect the Information Asymmetry of its Stock?

Posted: 13 Mar 2012 Last revised: 5 Jul 2016

See all articles by Hoang Luong

Hoang Luong

The University of Queensland - UQ Business School

Lily Nguyen

The University of Queensland - UQ Business School

Xiangkang Yin

Deakin University; Financial Research Network (FIRN)

Date Written: March 1, 2012

Abstract

Our empirical evidence establishes a positive association between short-term institutional ownership and private information in stock trading but a negative correlation between long-term institutional ownership and private information. These relations suggest that short-term institutional investors tend to explore their information advantage and trade speculatively for short-term profits, while long-term institutional investors are more likely to monitor the firms they own, leading to the reduction of the information asymmetry about the firm’s fundamental values. Our results are robust to the inclusion of controls for firm characteristics, analyst coverage and insider trading, as well as the choice of different private information proxies and estimation methods. Overall, our findings highlight the important role of investment horizon of institutional investors in shaping a firm’s information environment.

Keywords: Institutional Investors, Investment Horizon, Private Information, Information Asymmetry, Firm-specific Information

JEL Classification: G14, G32, G34

Suggested Citation

Luong, Hoang and Nguyen, Lily and Yin, Xiangkang, How Does the Investment Horizon of Institutional Investors of a Firm Affect the Information Asymmetry of its Stock? (March 1, 2012). Available at SSRN: https://ssrn.com/abstract=2020149 or http://dx.doi.org/10.2139/ssrn.2020149

Hoang Luong

The University of Queensland - UQ Business School ( email )

St Lucia
Brisbane, Queensland 4072
Australia

Lily Nguyen (Contact Author)

The University of Queensland - UQ Business School ( email )

St Lucia
Brisbane, Queensland 4072
Australia

Xiangkang Yin

Deakin University ( email )

Melbourne, Victoria
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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