38 Pages Posted: 22 Jul 2003
This study provides evidence that links institutional trading
behavior directly to anomalous turn-of-the-year (TOY) return
patterns of small stocks. We find that TOY trading patterns of
institutions reflect strategies that are generally consistent with window-dressing and risk-shifting behaviors. Institutions sell more loser small stocks in the last quarter of the year, but buy more small stocks, both winners and losers, in the first quarter. Institutional buying (selling) of loser stocks at year-end weakens (strengthens) the TOY effect. In addition, buying of winner stocks after year-end causes a statistically-significant, though weaker, effect.
Keywords: Institutions, Window-Dressing, Risk-Shifting, Turn-of-the-Year Effect
JEL Classification: G12, G14, G20
Suggested Citation: Suggested Citation