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Institutional Stakeholdings and Better-Informed Traders at Earnings Announcements

Journal of Accounting and Economics, Forthcoming

44 Pages Posted: 3 Jun 2004 Last revised: 2 Jul 2008

Ashiq Ali

University of Texas at Dallas - Naveen Jindal School of Management

Sandy Klasa

University of Arizona - Department of Finance

Oliver Zhen Li

National University of Singapore (NUS)

Date Written: February 2008

Abstract

Utama and Cready (1997) use total institutional ownership to proxy for the proportion of better-informed traders, an important determinant of trading around earnings announcements. We argue that institutions holding small stakes cannot justify the fixed cost of developing private predisclosure information. Also, institutions with large stakes generally do not trade around earnings announcements since they are dedicated investors or face regulations that make informed trading difficult. However, institutions holding medium stakes have incentives to develop private predisclosure information and trade on it; we show that their ownership is a finer proxy for the proportion of better-informed traders at earnings announcements.

Keywords: institutional investors, informed traders, trading volume

JEL Classification: G12, M41, G32

Suggested Citation

Ali, Ashiq and Klasa, Sandy and Li, Oliver Zhen, Institutional Stakeholdings and Better-Informed Traders at Earnings Announcements (February 2008). Journal of Accounting and Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=554263 or http://dx.doi.org/10.2139/ssrn.554263

Ashiq Ali (Contact Author)

University of Texas at Dallas - Naveen Jindal School of Management ( email )

800 West Campbell Road, SM41
Richardson, TX 75080-3021
United States
972-883-6360 (Phone)
972-883-6811 (Fax)

HOME PAGE: http://www.utdallas.edu/~axa042200/

Sandy Klasa

University of Arizona - Department of Finance ( email )

McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States
520-621-8761 (Phone)

Oliver Zhen Li

National University of Singapore (NUS) ( email )

Bukit Timah Road 469 G
Singapore, 117591
Singapore

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