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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 can track high-frequency changes in institutional ownership. In the U.S., however, institutions are only required to report their ownership quarterly in 13-F filings. We infer daily institutional trading behaviour from the “tape”, the Transactions and Quotes database of the New York Stock Exchange, using a sophisticated method that best matches quarterly 13-F data. 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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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6390.

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Date of creation: Jul 2007
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Handle: RePEc:cpr:ceprdp:6390

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Keywords: earnings announcements; institutions; liquidity; post-earnings-announcement-drift; trading;

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