Who Reacts to News?
Quarterly Journal of Finance, Forthcoming
53 Pages Posted: 15 Jul 2018
Date Written: June 23, 2018
We show that the positive relation between firm-level cash-flow news and institutional ownership documented by Cohen (2002) is mostly driven by short-horizon investors. Short-term institutions trade to incorporate cash-flow related information into prices and potentially reduce under-reaction to cash-flow news. In contrast, long-term institutions are more sensitive to discount-rate news, consistent with the idea that their strategy is to realize the long-term expected returns and that they care more about changes in their opportunity set. Our results support the premise that short and long-horizon institutions are potentially trading with each other based on their opposing preferences for news.
Keywords: Cash-Flow News, Discount-Rate News, Institutional Ownership, Investment Horizon
JEL Classification: G11, G12, G14
Suggested Citation: Suggested Citation