Institutional Trade Persistence and Long-term Equity Returns

46 Pages Posted: 16 Mar 2006 Last revised: 30 Jul 2010

See all articles by Amil Dasgupta

Amil Dasgupta

London School of Economics (LSE); European Corporate Governance Institute (ECGI)

Andrea Prat

Columbia University - Columbia Business School, Finance; Centre for Economic Policy Research (CEPR)

Michela Verardo

London School of Economics & Political Science (LSE)

Multiple version iconThere are 2 versions of this paper

Date Written: May 4, 2010

Abstract

Recent studies show that single-quarter institutional herding positively predicts short-term returns. Motivated by the theoretical herding literature, which emphasizes endogenous persistence in decisions over time, we estimate the effect of multi-quarter institutional buying and selling on stock returns. Using both regression and portfolio tests, we find that persistent institutional trading negatively predicts long-term returns: persistently sold stocks outperform persistently bought stocks at long horizons. The negative association between returns and institutional trade persistence is not subsumed by past returns or other stock characteristics, is concentrated among smaller stocks, and is stronger for stocks with higher institutional ownership.

Suggested Citation

Dasgupta, Amil and Prat, Andrea and Verardo, Michela, Institutional Trade Persistence and Long-term Equity Returns (May 4, 2010). Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=718063 or http://dx.doi.org/10.2139/ssrn.718063

Amil Dasgupta

London School of Economics (LSE) ( email )

Houghton Street
London WC2A 2AE
United Kingdom
+44 20 7955 7458 (Phone)
+44 20 7955 7420 (Fax)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
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1000 Brussels
Belgium

Andrea Prat

Columbia University - Columbia Business School, Finance ( email )

3022 Broadway
New York, NY 10027
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Michela Verardo (Contact Author)

London School of Economics & Political Science (LSE) ( email )

Department of Finance
Houghton Street
London, WC2A 2AE
United Kingdom

HOME PAGE: http://personal.lse.ac.uk/verardom/

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