The Effect of Regulation Fd on Transient Institutional Investors' Trading Behavior

46 Pages Posted: 3 May 2005 Last revised: 13 Mar 2008

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

Yong Yu

University of Texas at Austin

Date Written: March 2008

Abstract

We assess the impact of Reg FD on the trading behavior of transient institutional investors in the quarter prior to a bad news break in a string of consecutive earnings increases. Bad news breaks are defined as breaks that are by growth firms, preceded by longer strings of consecutive earnings increases, followed by longer strings of consecutive earnings decreases, and associated with larger declines in earnings. Pre Reg FD transient institutions have abnormal selling of stocks in the quarter immediately preceding a bad news break. This abnormal selling is confined to firms that held conference calls in the pre Reg FD period. However, in the post Reg FD period transient institutions do not exhibit similar abnormal selling of stocks in the quarter before a bad news break. Furthermore, after Reg FD transient institutions allocate less of their stock portfolios to conference call firms relative to non-conference call firms in the quarters prior to a bad news break. These results demonstrate that Reg FD has had an impact on management's selective disclosure behavior and significantly changed the trading behavior of transient institutions.

Keywords: Regulation FD, earnings strings, transient institutional investors

JEL Classification: M41, M45, G38, G23

Suggested Citation

Ke, Bin and Petroni, Kathy Ruby and Yu, Yong, The Effect of Regulation Fd on Transient Institutional Investors' Trading Behavior (March 2008). Available at SSRN: https://ssrn.com/abstract=715323 or http://dx.doi.org/10.2139/ssrn.715323

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)

Yong Yu

University of Texas at Austin ( email )

1 University Station B6400
Austin, TX 78712
United States
(512)471-6714 (Phone)
(512)471-3904 (Fax)

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