Active Funds and Bundled News

52 Pages Posted: 27 Jul 2018 Last revised: 26 Jun 2020

See all articles by Charles M.C. Lee

Charles M.C. Lee

Stanford University - Graduate School of Business

Christina Zhu

University of Pennsylvania - The Wharton School

Date Written: June 25, 2020

Abstract

We use trade-level data to examine the role of actively managed funds (AMFs) in earnings news dissemination. We find AMFs are drawn to, and participate disproportionately more in, earnings announcements (EAs) that include bundled managerial guidance. When the two pieces of news are directionally inconsistent, AMFs trade in the direction of future guidance rather than current earnings. AMFs exhibit an ability to discern, and adapt their trading to, the bias in bundled guidance. While AMF trades at EAs are generally more profitable than their non-EA trades, this result reverses when the bias in guidance is extreme. Overall, we find increased AMF trading during EAs leads to faster price adjustment. Collectively, these findings suggest AMFs are sophisticated processors of bundled earnings news, and their trading generally improves market price discovery.

Keywords: actively managed funds, earnings announcements, management forecasts, information processing, price efficiency, trading volume

JEL Classification: G12, G14, G23, M41

Suggested Citation

Lee, Charles M.C. and Zhu, Christina, Active Funds and Bundled News (June 25, 2020). Stanford University Graduate School of Business Research Paper No. 18-35, 29th Annual Conference on Financial Economics & Accounting 2018, Available at SSRN: https://ssrn.com/abstract=3209449 or http://dx.doi.org/10.2139/ssrn.3209449

Charles M.C. Lee

Stanford University - Graduate School of Business ( email )

Stanford Graduate School of Business
655 Knight Way
Stanford, CA 94305-5015
United States
650-721-1295 (Phone)

Christina Zhu (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
341
Abstract Views
2,384
rank
96,294
PlumX Metrics