How Informed are Actively Trading Institutional Investors? Evidence from Their Trading Behavior Before a Break in a String of Consecutive Earnings Increases

45 Pages Posted: 10 Oct 2003

See all articles by Bin Ke

Bin Ke

National University of Singapore

Kathy R. Petroni

Michigan State University - Eli Broad College of Business and Eli Broad Graduate School of Management

Date Written: January 14, 2004

Abstract

Institutional investors are often assumed better informed but settings in which they are better informed or the sources of their advantage are not identified. We examine a setting that demonstrates institutional investors' information advantage and their source. We show that transient institutions (i.e., those trading actively to maximize short-term profits) predict breaks in strings of consecutive quarterly earnings increases at least one quarter prior to the break quarter. We also provide evidence that one source of their advantage is private communications with management. We find no evidence that other types of institutional investors predict breaks.

JEL Classification: M41, N20, G29, G24, G32

Suggested Citation

Ke, Bin and Petroni, Kathy Ruby, How Informed are Actively Trading Institutional Investors? Evidence from Their Trading Behavior Before a Break in a String of Consecutive Earnings Increases (January 14, 2004). Available at SSRN: https://ssrn.com/abstract=448720 or http://dx.doi.org/10.2139/ssrn.448720

Bin Ke

National University of Singapore ( email )

Mochtar Riady Building, BIZ 1, #07-53
15 Kent Ridge Drive
Singapore, 119245
Singapore
+6566013133 (Phone)

Kathy Ruby Petroni (Contact Author)

Michigan State University - Eli Broad College of Business and Eli Broad Graduate School of Management ( email )

East Lansing, MI 48824-1121
United States
517-432-2924 (Phone)
517-432-1101 (Fax)

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