Are Trade Size Based Inferences About Traders Reliable? Evidence from Institutional Earnings-Related Trading

46 Pages Posted: 11 May 2014 Last revised: 27 Jul 2014

See all articles by William M. Cready

William M. Cready

University of Texas at Dallas - Naveen Jindal School of Management

Abdullah Kumas

University of Richmond - Robins School of Business

Musa Subasi

University of Maryland-College Park - Robert H. Smith School of Business

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Date Written: May 9, 2014

Abstract

The use of observed transaction sizes to differentiate between “small” and “large” investor trading patterns is widespread. A significant concern in such studies is spurious effects attributable to misclassification of transactions, particularly those originating from large investors. Such effects can arise unintentionally, strategically, or endogenously. We examine comprehensive records of a sample of institutional investors (i.e., “large” traders), including their order sizes and overall position changes, to assess the degree to which such misclassifications give rise to spurious inferences about “small” and “large” investor trading activities. Our analysis shows that these institutions are heavily involved in small transaction activity. It also shows that they increase their order sizes substantially in announcement periods relative to non-announcement periods, presumably as an endogenous response to earnings news. In the immediate earnings announcement period, transaction size based inferences about directional trading are quite misleading -- producing spurious “small trader” effects and, more surprisingly, erroneous inferences about “large trader” activity.

Keywords: Large Traders, Small Traders, Earnings Expectations, Post-earnings-announcement drift, Transaction Sizes

JEL Classification: G14

Suggested Citation

Cready, William M. and Kumas, Abdullah and Subasi, Musa, Are Trade Size Based Inferences About Traders Reliable? Evidence from Institutional Earnings-Related Trading (May 9, 2014). Journal of Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2435241 or http://dx.doi.org/10.2139/ssrn.2435241

William M. Cready

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

Abdullah Kumas

University of Richmond - Robins School of Business ( email )

28 westhampton way
Richmond, VA virginia 23173
United States

Musa Subasi (Contact Author)

University of Maryland-College Park - Robert H. Smith School of Business ( email )

University of Maryland-College Park
4332N Van Munching Hall
College Park, MD 20742
United States
301-314-1055 (Phone)

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