Institutional Trading and Stock Returns

19 Pages Posted: 15 Jan 2001

See all articles by Fang Cai

Fang Cai

Federal Reserve Board

Lu Zheng

University of California, Irvine - Paul Merage School of Business

Date Written: June 2004

Abstract

In this study, we explore the dynamics of the relation between institutional trading and stock returns. We find that stock returns Granger-cause institutional trading (especially purchases) on a quarterly basis. The robust and significant causality from equity returns to institutional trading can be largely explained by the time-series variation of market returns, that is, institutions buy more popular stocks after market rises. Stock returns appear to be negatively related to lagged institutional trading. An analysis of the behavior of trading and the returns of the traded stocks reveals evidence that stocks with heavy institutional buying (selling) experience positive (negative) excess returns over the previous 12 months.

Keywords: Institutional Trading, Stock Returns, Stock Price

JEL Classification: N2, G0, G1, G2

Suggested Citation

Cai, Fang and Zheng, Lu, Institutional Trading and Stock Returns (June 2004). EFMA 2001 Lugano Meetings; EFA 2001 Barcelona Meetings. Available at SSRN: https://ssrn.com/abstract=251941 or http://dx.doi.org/10.2139/ssrn.251941

Fang Cai (Contact Author)

Federal Reserve Board ( email )

Office of Financial Stability Policy and Research
1801 K St NW
Washington, DC 20551
United States
202-452-3540 (Phone)
202-263-4850 (Fax)

Lu Zheng

University of California, Irvine - Paul Merage School of Business ( email )

Paul Merage School of Business
Irvine, CA California 92697-3125
United States
9498248365 (Phone)

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