The Performance of Institutional Investor Trades Across the Supply Chain
47 Pages Posted: 3 Apr 2016
Date Written: April 1, 2016
In this study, we investigate the significance of supply-chain relationships for institutional investors. We find that supply-chain relationships are an important determinant of institutional ownership – an institution that owns a customer firm is five times more likely than other institutions to also have an ownership stake in the firm’s supplier. Further, institutions experience abnormal trading profits in supplier firms. Trading profits are concentrated in small suppliers with negative future abnormal performance, consistent with institutional investors trading on negative information shocks across the supply chain. Robustness tests help to support a conclusion that supply-chain relationships provide a rich source of information through which institutions realize abnormal trading profits.
Keywords: institutional trading, informed trading, supply chain
JEL Classification: G12, G14, G20
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