Individual and Institutional Informed Trading in Competing Firms Around Earnings Announcements

This study investigates individual and institutional trading activities before and after earnings announcements to infer informed trading in competing firms. We find evidence for individual and institutional informed trading in competing firms before earnings announcements. Magnitude of institutional (individual) net order flow coefficient decreases (increases) with lag length, suggesting 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. Institutional trading in competing firm exhibits cross-stock price impact before earnings announcements. Our results will be informative for regulators with regard to insider trading laws and provide insights 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

Mudalige, Priyantha and Kalev, Petko S. and Gupta, Kartick and Duong, Huu Nhan, Individual and Institutional Informed Trading in Competing Firms Around Earnings Announcements (January 18, 2017). 8th Conference on Financial Markets and Corporate Governance (FMCG) 2017, Available at SSRN: https://ssrn.com/abstract=2901338 or http://dx.doi.org/10.2139/ssrn.2901338