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When Anomalies Are Publicized Broadly, Do Institutions Trade Accordingly?

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  • Paul Calluzzo

    (Smith School of Business, Queen’s University, Kingston, Ontario K7L 3N6, Canada)

  • Fabio Moneta

    (Smith School of Business, Queen’s University, Kingston, Ontario K7L 3N6, Canada)

  • Selim Topaloglu

    (Smith School of Business, Queen’s University, Kingston, Ontario K7L 3N6, Canada)

Abstract

This paper studies whether institutional investors trade on 14 well documented stock market anomalies. We show that there is an increase in anomaly-based trading when information about the anomalies is readily available through academic publications and the release of necessary accounting data. This finding is more pronounced among hedge funds and institutions with high turnover, that is, the subset of investors who likely have the abilities and incentives to act on the anomalies. We directly relate the increase in trading to the observed decay in post-publication anomaly returns. Our results support the role of institutional investors in the arbitrage process and in improving market efficiency.

Suggested Citation

  • Paul Calluzzo & Fabio Moneta & Selim Topaloglu, 2019. "When Anomalies Are Publicized Broadly, Do Institutions Trade Accordingly?," Management Science, INFORMS, vol. 65(10), pages 4555-4574, October.
    • Handle: RePEc:inm:ormnsc:v:65:y:2019:i:10:p:4555-4574
    DOI: 10.1287/mnsc.2018.3066
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    12. Blankespoor, Elizabeth & deHaan, Ed & Marinovic, Iván, 2020. "Disclosure processing costs, investors’ information choice, and equity market outcomes: A review," Journal of Accounting and Economics, Elsevier, vol. 70(2).
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    14. Chen, Haosi (Chelsea) & Puckett, Andy, 2023. "Do Hedge Funds Value Sell-Side Analysts Differently?," Journal of Banking & Finance, Elsevier, vol. 154(C).
    15. Andrew Y. Chen & Alejandro Lopez-Lira & Tom Zimmermann, 2022. "Does peer-reviewed theory help predict the cross-section of stock returns?," Papers 2212.10317, arXiv.org, revised Nov 2023.
    16. Charoenwong, Ben & Nettayanun, Sampan & Saengchote, Kanis, 2021. "Digesting anomalies: A q-factor approach for the Thai market," Pacific-Basin Finance Journal, Elsevier, vol. 69(C).
    17. Engelberg, Joseph & McLean, R. David & Pontiff, Jeffrey, 2020. "Analysts and anomalies," Journal of Accounting and Economics, Elsevier, vol. 69(1).
    18. Mustafa O. Caglayan & Umut Celiker & Gokhan Sonaer, 2022. "Disagreement between hedge funds and other institutional investors and the cross‐section of expected stock returns," The Financial Review, Eastern Finance Association, vol. 57(3), pages 663-689, August.
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