Investor Competition over Information and Stock Returns
51 Pages Posted: 13 Jun 2014 Last revised: 24 Apr 2015
Date Written: April 23, 2015
Drawing upon recent research on the governance effect of information competition among informed investors, we hypothesize a cross-sectional variation in future stock returns that is conditional on information competition. Measuring competition using the concentration of institutional ownership, we show one-quarter-ahead and one-year-ahead returns are increasing in the intensity of information competition. This relationship stems from competition among short-term institutional investors and is more pronounced for stocks with high valuation uncertainty and/or when managerial incentives are more aligned with stock prices. We also find that intense information competition is associated with superior operating performance and more favorable earnings news in the next four quarters. Overall, the results suggest that equity prices and corporate performance are related to competition among informed investors.
Keywords: information competition; stock returns; corporate performance
JEL Classification: G32; G12; G20
Suggested Citation: Suggested Citation