Wisdom of the Institutional Crowd: Implications for Anomaly Returns

64 Pages Posted: 22 Sep 2022

See all articles by AJ Chen

AJ Chen

University of Southern California - Marshall School of Business

Gerard Hoberg

University of Southern California - Marshall School of Business - Finance and Business Economics Department

Miao Ben Zhang

University of Southern California - Marshall School of Business - Finance and Business Economics Department

Date Written: September 1, 2022

Abstract

We hypothesize that when price correction requires more capital than any one investor can provide, institutions coordinate trading via crowd-sourcing in the media. When the crowd reaches a consensus, synchronized trading occurs, prices are corrected, and anomaly returns result. We use over one million Wall Street Journal articles from 1980 to 2020 to develop a novel textual measure of institutional investors making predictions in the media (InstPred). We show that (i) both value and momentum anomaly returns are 34% to 63% larger when InstPred is higher; (ii) these effects are driven by stocks whose institutional investors are highly cited in WSJ articles; and (iii) institutional investors collectively trade the anomalies more aggressively when InstPred is higher. Our results cannot be explained by existing measures such as document tone.

Keywords: Media, Crowd Sourcing, Value Premium, Momentum, WSJ, Institutional Investors

Suggested Citation

Chen, AJ and Hoberg, Gerard and Zhang, Miao Ben, Wisdom of the Institutional Crowd: Implications for Anomaly Returns (September 1, 2022). Available at SSRN: https://ssrn.com/abstract=4207132 or http://dx.doi.org/10.2139/ssrn.4207132

AJ Chen

University of Southern California - Marshall School of Business ( email )

Los Angeles, CA
United States

Gerard Hoberg (Contact Author)

University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )

Marshall School of Business
Los Angeles, CA 90089
United States

HOME PAGE: http://faculty.marshall.usc.edu/Gerard-Hoberg/

Miao Ben Zhang

University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )

Marshall School of Business
Los Angeles, CA 90089
United States

HOME PAGE: http://www.MiaoBenZhang.com/

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