Short-Term Trading Skill: An Analysis of Investor Heterogeneity and Execution Quality

68 Pages Posted: 11 Jul 2014 Last revised: 9 Oct 2018

See all articles by Mehmet Saglam

Mehmet Saglam

University of Cincinnati - Department of Finance - Real Estate

Ciamac C. Moallemi

Columbia Business School - Decision Risk and Operations

Michael Sotiropoulos

Bank of America - Bank of America Merrill Lynch

Date Written: August 1, 2018

Abstract

We examine short-horizon return predictability using a novel proprietary dataset of institutional traders with known identities. We estimate investor-specific short-term trading skill and find that there is pronounced heterogeneity in predicting short-term returns among institutional investors. Incorporating short-term predictive ability, our model explains much higher fraction of variation in asset returns. Ignoring the heterogeneity in short-term trading skill can have major implications in modeling price impact. We uncover several stylized trading patterns of skilled trading: skilled investors choose larger trade sizes, avoid dark pools, trade fewer stocks on any given day, but they do not time high-liquidity periods.

Keywords: Short-term Return Predictability, Institutional Trading, Execution Quality, Algorithmic Trading

JEL Classification: G11, G14, G24

Suggested Citation

Saglam, Mehmet and Moallemi, Ciamac C. and Sotiropoulos, Michael, Short-Term Trading Skill: An Analysis of Investor Heterogeneity and Execution Quality (August 1, 2018). Available at SSRN: https://ssrn.com/abstract=2463952 or http://dx.doi.org/10.2139/ssrn.2463952

Mehmet Saglam (Contact Author)

University of Cincinnati - Department of Finance - Real Estate ( email )

Carl H. Lindner College of Business
Cincinnati, OH 45221
United States
(513) 556-9108 (Phone)

HOME PAGE: http://homepages.uc.edu/~saglammt/

Ciamac C. Moallemi

Columbia Business School - Decision Risk and Operations ( email )

New York, NY
United States

HOME PAGE: http://moallemi.com/ciamac

Michael Sotiropoulos

Bank of America - Bank of America Merrill Lynch ( email )

United States

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