Individual and Institutional Informed Trading in Competing Firms Around Earnings Announcements
43 Pages Posted: 23 Jun 2016
Date Written: June 22, 2016
This study investigates individual and institutional trading activities in competing firms to infer informed trading. We find evidence for individual and institutional informed trading in competing firms around earnings announcements. The evidence is stronger prior to announcements than after announcements. Magnitude of institutional (individual) net order flow coefficient decreases (increases) with lag length, suggesting that institutional trading captures information faster than individual trading. Individual net order flow transmit information cross-stock when competitor is a small firm while institutional net order flow conveys information cross-stock irrespective of firm size. Our results will be informative for regulators with regard to insider trading laws and provide insights for market participants on the impact of individual and institutional trading on cross-stock price discovery process.
Keywords: Institutional and Individual Investors; Competing and Announcing Firms; Returns; Net Order Flow; Earnings Announcements; Informed Trading
JEL Classification: G11; G12; G14
Suggested Citation: Suggested Citation