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Caught on tape: Institutional trading, stock returns, and earnings announcements

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  • Campbell, John Y.
  • Ramadorai, Tarun
  • Schwartz, Allie

Abstract

Many questions about institutional trading can only be answered if one tracks high-frequency changes in institutional ownership. In the United States, however, institutions are only required to report their ownership quarterly in 13-F filings. We infer daily institutional trading behavior from the "tape", the Transactions and Quotes database of the New York Stock Exchange, using a sophisticated method that best predicts quarterly 13-F data from trades of different sizes. We find that daily institutional trades are highly persistent and respond positively to recent daily returns but negatively to longer-term past daily returns. Institutional trades, particularly sells, appear to generate short-term losses--possibly reflecting institutional demand for liquidity--but longer-term profits. One source of these profits is that institutions anticipate both earnings surprises and post-earnings announcement drift. These results are different from those obtained using a standard size cutoff rule for institutional trades.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Financial Economics.

Volume (Year): 92 (2009)
Issue (Month): 1 (April)
Pages: 66-91

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Handle: RePEc:eee:jfinec:v:92:y:2009:i:1:p:66-91

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Web page: http://www.elsevier.com/locate/inca/505576

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Keywords: Institutions Trading Stock returns Post-earnings announcement drift;

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