How Smart is Instiutional Trading?
45 Pages Posted: 30 Jan 2017 Last revised: 10 Feb 2020
Date Written: February 9, 2020
Abstract
We estimate daily aggregate order flow of individual stocks from institutional investors as well as for hedge funds and other institutions separately. We find that the estimated institutional order imbalance positively predicts stock return on the next day and outperforms other institutional order flow estimates. The institutional order flow from hedge funds generates greater and more persistent price impact than the order flow from other institutions. We also find that hedge funds trade on well-known anomalies while the other institutions do not. Our findings suggest that the superior trading skills of institutional investors can be largely attributed to hedge funds.
Keywords: Institutional trading; Hedge funds; Trading behavior
JEL Classification: G11, G12, G23
Suggested Citation: Suggested Citation