Mispricing by Underreaction of Information: Evidence from Institutional Holdings

47 Pages Posted: 11 Dec 2022 Last revised: 20 May 2024

See all articles by Sayad Baronyan

Sayad Baronyan

Informa Financial Intelligence, EPFR

Yinghua Fan

City University of Hong Kong (CityU)

Guanhao Feng

City University of Hong Kong (CityU)

Date Written: December 6, 2022

Abstract

This paper documents how institutions underreact to public information by examining the monthly resultant price impact. We find that the price impact led by institutional demand and its interaction with information lasts shortly, while the information effect solely drives long-term outperformance. We show this mispricing can be attributed to investor overconfidence and irrational outflows. Moreover, we find the heterogeneity and asymmetry in price impact formation. Price impact is heterogeneous and time-varying, depending on firm characteristics and macro fundamentals. Its common part is responsible for stronger selling reactions than buying, with exposures of outflow 15 times larger than inflow.

Keywords: Information, institutions, mispricing, price impact, and price momentum.

JEL Classification: G11, G12, G23

Suggested Citation

Baronyan, Sayad and Fan, Yinghua and Feng, Guanhao, Mispricing by Underreaction of Information: Evidence from Institutional Holdings (December 6, 2022). Available at SSRN: https://ssrn.com/abstract=4294373 or http://dx.doi.org/10.2139/ssrn.4294373

Sayad Baronyan

Informa Financial Intelligence, EPFR ( email )

5 Howick Place
Westminster
London, SW1P 1WG
United Kingdom

Yinghua Fan (Contact Author)

City University of Hong Kong (CityU) ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

Guanhao Feng

City University of Hong Kong (CityU) ( email )

83 Tat Chee Avenue
Hong Kong

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