Caught on Tape: Predicting Institutional Ownership with Order Flow

50 Pages Posted: 25 Mar 2004

See all articles by John Y. Campbell

John Y. Campbell

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Tuomo Vuolteenaho

Arrowstreet Capital, LP; National Bureau of Economic Research (NBER)

Tarun Ramadorai

Imperial College London; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Date Written: October 2004

Abstract

Many questions about institutional trading can only be answered if one can track institutional equity ownership continuously. However, these data are only available on quarterly reporting dates. We infer institutional trading behavior from the tape, the Transactions and Quotes database of the New York Stock Exchange, by regressing quarterly changes in reported institutional ownership on quarterly buy and sell volume in different trade size categories. Our regression method predicts institutional ownership signifcantly better than the simple cutoff rules used in previous research.

We also find that total buy (sell) volume predicts increasing (decreasing) institutional ownership, consistent with institutions demanding liquidity in aggregate.

Furthermore,institutions tend to trade in large or very small sizes: buy (sell) volume at these sizes predicts increasing (decreasing) institutional ownership, while the pattern reverses at intermediate trade sizes that appear favored by individuals. We then explore changes in institutional trading strategies. Institutions appear to prefer medium size trades on high volume days and large size trades on high volatility days.

Keywords: institutions, individuals, trading behavior, execution

JEL Classification: G10, G20

Suggested Citation

Campbell, John Y. and Vuolteenaho, Tuomo and Ramadorai, Tarun, Caught on Tape: Predicting Institutional Ownership with Order Flow (October 2004). Available at SSRN: https://ssrn.com/abstract=519882 or http://dx.doi.org/10.2139/ssrn.519882

John Y. Campbell (Contact Author)

Harvard University - Department of Economics ( email )

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Tuomo Vuolteenaho

Arrowstreet Capital, LP ( email )

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National Bureau of Economic Research (NBER)

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Tarun Ramadorai

Imperial College London ( email )

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United Kingdom

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

Centre for Economic Policy Research (CEPR) ( email )

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European Corporate Governance Institute (ECGI) ( email )

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1000 Brussels
Belgium

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