Institutional Investors, Intangible Information and the Book-to-Market Effect

62 Pages Posted: 22 Feb 2007 Last revised: 27 Nov 2014

See all articles by Hao Jiang

Hao Jiang

Michigan State University

Date Written: January 1, 2009


This paper establishes a robust link between the trading behavior of institutions and the book-to-market effect. Building on work by Daniel and Titman (2006), who argue that the book-to-market effect is driven by the reversal of intangible returns, I find that institutions tend to buy (sell) shares in response to positive (negative) intangible information and that the reversal of the intangible return is most pronounced among stocks for which a large proportion of active institutions trade in the direction of intangible information. Furthermore, the book-to-market effect is large and significant in stocks with intense past institutional trading but nonexistent in stocks with moderate institutional trading. This influence of institutional trading on the book-to-market effect is distinct from that of firm size. These results are consistent with the view that the tendency of institutions to trade in the direction of intangible information exacerbates price overreaction, thereby contributing to the value premium.

Keywords: Book-to-Market Effect, Institutional Investors, Intangible Information, Overreaction

JEL Classification: G12, G14, G23

Suggested Citation

Jiang, Hao, Institutional Investors, Intangible Information and the Book-to-Market Effect (January 1, 2009). Journal of Financial Economics (JFE), Vol. 96, pp. 98–126, 2010, Available at SSRN:

Hao Jiang (Contact Author)

Michigan State University ( email )

315 Eppley Center
Department of Finance
East Lansing, MI 48824
United States


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