Institutional Stakeholdings and Better-Informed Traders at Earnings Announcements

Ali, Ashiq; Klasa, Sandy; Li, Oliver Zhen

doi:10.2139/ssrn.554263

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

See all articles by Ashiq Ali

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: 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