Individual and Institutional Informed Trading in Competing Firms Around Earnings Announcements

44 Pages Posted: 19 Jan 2017

See all articles by Priyantha Mudalige

Priyantha Mudalige

Curtin University- School of Economics, Finance and property

Petko S. Kalev

La Trobe Business School

Kartick Gupta

University of South Australia

Huu Nhan Duong

Monash University - Department of Banking and Finance; Financial Research Network (FIRN)

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Date Written: January 18, 2017

Abstract

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

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

Priyantha Mudalige (Contact Author)

Curtin University- School of Economics, Finance and property ( email )

Building, 408 Room 3035
Kent St.
Bentley, WA 6102
Australia
61892669977 (Phone)

Petko S. Kalev

La Trobe Business School ( email )

Department of Economics and Finance
Donald Whitehead Building: Level 3, DWB313
Bundoora, Victoria 3086
Australia
+613 9479 6285 (Phone)
+613 9479 1654 (Fax)

HOME PAGE: http://www.latrobe.edu.au/business/about/staff/profile?uname=PKalev

Kartick Gupta

University of South Australia ( email )

37-44 North Terrace, City West Campus
Adelaide, South Australia 5001
Australia
+61 8 830 27179 (Phone)

HOME PAGE: http://people.unisa.edu.au/Kartick.Gupta

Huu Nhan Duong

Monash University - Department of Banking and Finance ( email )

Melbourne
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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