Who Reacts to News?

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

Chichernea, Doina and Gilstrap, Collin and Huang, Kershen and Petkevich, Alex, Who Reacts to News? (June 23, 2018). Quarterly Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3201678