Institutional Investors and Equity Returns: Are Short-Term Institutions Better Informed?

48 Pages Posted: 23 Oct 2006

See all articles by Zhe Zhang

Zhe Zhang

Singapore Management University

Xuemin Sterling Yan

University of Missouri - Columbia

Multiple version iconThere are 2 versions of this paper


We show that the positive relation between institutional ownership and future stock returns documented in Gompers and Metrick (2001) is driven by short-term institutions. Furthermore, short-term institutions' trading forecasts future stock returns. This predictability does not reverse in the long run and is stronger for small and growth stocks. Short-term institutions' trading is also positively related to future earnings surprises. By contrast, long-term institutions' trading does not forecasts future returns, nor is it related to future earnings news. Our results are consistent with the view that short-term institutions are better informed and they trade actively to exploit their informational advantage.

Keywords: Institutional trading, Investment horizon, Return predictability

JEL Classification: G12, G14, G20

Suggested Citation

Zhang, Zhe and Yan, Xuemin Sterling, Institutional Investors and Equity Returns: Are Short-Term Institutions Better Informed?. Review of Financial Studies, Forthcoming. Available at SSRN:

Zhe Zhang

Singapore Management University ( email )

Lee Kong Chian School of Business
50 Stamford Road
Singapore, 178899

Xuemin Sterling Yan (Contact Author)

University of Missouri - Columbia ( email )

Robert J. Trulaske Sr. College of Business
427 Cornell Hall
Columbia, MO 65211-2600
United States
573-884-9708 (Phone)
573-884-6296 (Fax)


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