Changes in Institutional Ownership and Subsequent Earnings Announcement Abnormal Returns

Posted: 1 May 2006

See all articles by Ashiq Ali

Ashiq Ali

University of Texas at Dallas - Naveen Jindal School of Management

Cindy Durtschi

DePaul University - School of Accountancy and MIS

Baruch Lev

New York University - Stern School of Business

Mark A. Trombley

University of Arizona - Eller College of Management

Multiple version iconThere are 3 versions of this paper

Abstract

This study documents an association between changes in institutional ownership during a calendar quarter and abnormal returns at the time of subsequent announcements of quarterly earnings. The result is driven by the portfolio returns of the extreme deciles of changes in institutional ownership, suggesting that institutions trade based on information about future earnings, but that such trading is not widespread. We also find that the difference between earnings announcement returns of the extreme deciles of change in institutional ownership is much greater when change in institutional ownership of a stock is driven by relatively few institutions, measured using the skewness of the distribution of change in institutional ownership of the stock. This result suggests that when fewer differentially informed investors make disproportionately large purchases or sales of stocks, a greater amount of the information on which they base their trades is not impounded in prices until the subsequent earnings announcement. Finally, we show that our results obtain for institutional investors with short-term focus, such as independent advisors, investment companies and insurance companies, but not for institutional investors with long-term focus, such as internally managed pension funds, educational institutions, and private foundations. This result further supports our conclusions regarding informed trading by institutions based on information about forthcoming earnings.

Keywords: institutional ownership, informed trading, correlated information

JEL Classification: G14

Suggested Citation

Ali, Ashiq and Durtschi, Cindy and Lev, Baruch Itamar and Trombley, Mark A., Changes in Institutional Ownership and Subsequent Earnings Announcement Abnormal Returns. Journal of Accounting, Auditing and Finance, Vol. 19, Summer 2004, Available at SSRN: https://ssrn.com/abstract=897796 or http://dx.doi.org/10.2139/ssrn.315119

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/

Cindy Durtschi

DePaul University - School of Accountancy and MIS ( email )

Chicago, IL 60604
United States
312-362-8789 (Phone)

Baruch Itamar Lev

New York University - Stern School of Business ( email )

40 West 4th Street, Suite 400
New York, NY 10012
United States
212-998-0028 (Phone)
212-995-4001 (Fax)

HOME PAGE: http://www.baruch-lev.com

Mark A. Trombley

University of Arizona - Eller College of Management ( email )

McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States
520-621-4805 (Phone)
520-621-3742 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
2,177
PlumX Metrics