Changes in Ownership Breadth and Capital Market Anomalies
48 Pages Posted: 19 Jun 2017 Last revised: 18 Sep 2020
Date Written: September 17, 2020
We investigate how the interaction of entries and exits of informed institutional investors with market anomaly signals affects strategy performance. The long legs of anomalies earn more positive alphas following entries, while the short legs earn more negative alphas following exits. The enhanced anomaly-based strategies of buying stocks in the long legs of anomalies with entries and shorting stocks in the short legs with exits outperform the original anomalies, with an increase of 19-90 bps per month in the Fama-French five-factor alpha. The entries and exits of institutional investors capture informed trading and earnings surprises, thereby enhancing the anomalies.
Keywords: Institutional investors, Capital market anomalies, Performance enhancement
JEL Classification: G23, G12
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