Changes in Ownership Breadth and Capital Market Anomalies
57 Pages Posted: 19 Jun 2017 Last revised: 23 Jan 2020
Date Written: January 20, 2020
This paper investigates how the interaction of entries and exits of informed institutional investors with market anomaly signals affects strategy performance. We find that the long legs of anomalies earn more positive alphas following entries, while the short legs of anomalies earn more negative alphas following exits of informed institutional investors. We develop enhanced anomaly-based strategies by buying stocks in the long legs of anomalies with entries and shorting stocks in the short legs of anomalies with exits. These strategies outperform the original anomalies, with an increase of 19 to 90 bps per month in the Fama and French (2015) five-factor alpha. The entries and exits of institutional investors capture informed trading and future earnings surprises, thereby enhancing the anomalies.
Keywords: Institutional investors, Capital market anomalies, Performance enhancement
JEL Classification: G23, G12
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