Institutional Trading and Share Returns
50 Pages Posted: 28 Feb 2005 Last revised: 27 Feb 2011
Date Written: November 8, 2005
Using a unique database of daily transactions from Australian equity managers, we investigate the relation between institutional trading and share returns. The 34 institutional investors included in our sample exhibit a statistically and economically significant ability to predict large capitalization share returns for the ten days following their trades. Detailed analysis indicates that investment manager style is important in understanding the link between institutional trading and stock returns. The contemporaneous relation between institutional trading and returns depends on trade size, broker use, and investment style. We find growth-oriented managers are momentum traders, while style-neutral and value managers are contrarian.
Keywords: Trading behavior, informed trading, market impact, institutional trading
JEL Classification: G14, G23
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