Informed Trading by Institutions and Quality of Accounting Information
Posted: 27 Dec 2000
Date Written: October 2000
This study documents that change in institutional ownership of a company during a calendar quarter is associated with abnormal returns at the time of subsequent announcements of quarterly earnings. This result suggests informed trading by institutions based on superior information about forthcoming earnings. The study also shows that the association is observed primarily for firms with low book to market value of equity and high levels of R&D activity, measures of unrecorded intangible assets. These results are consistent with such firms being good candidates for productive information search and interpretation by institutional investors because accounting numbers of such firms provide relatively less value-relevant information.
Keywords: Institutional trading, earnings accouncements, selective disclosure
JEL Classification: G14, G24, G32, M41
Suggested Citation: Suggested Citation