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Style Investing and Institutional Investors

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  • Froot, Kenneth
  • Teo, Melvyn

Abstract

This Paper explores the importance and price implications of style investing by institutional investors in the stock market. To analyze styles, we assign stocks to deciles or segments across three style dimensions: size, value/growth, and sector. we find strong evidence that institutional investors reallocate and sector. We find strong evidence that institutional investors reallocate across style groupings more intensively than across random stock groupings. In addition, we show that own segment style inflows and refurns positively forecast future stock returns, which distant segament style inflows and returns forecast negatively. We argue that behavioral theories play a role in explaining these results.

Suggested Citation

  • Froot, Kenneth & Teo, Melvyn, 2008. "Style Investing and Institutional Investors," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 43(04), pages 883-906, December.
  • Handle: RePEc:cup:jfinqa:v:43:y:2008:i:04:p:883-906_01
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    Cited by:

    1. Tariq Haque, 2009. "Switching Between the Banking and Metals and Mining Sectors of Australia-super-," International Review of Finance, International Review of Finance Ltd., vol. 9(4), pages 387-403.
    2. Wahal, Sunil & Yavuz, M. Deniz, 2013. "Style investing, comovement and return predictability," Journal of Financial Economics, Elsevier, vol. 107(1), pages 136-154.
    3. Prashant Das & Julia Freybote & Gianluca Marcato, 2015. "An Investigation into Sentiment-Induced Institutional Trading Behavior and Asset Pricing in the REIT Market," The Journal of Real Estate Finance and Economics, Springer, vol. 51(2), pages 160-189, August.
    4. repec:eee:finsta:v:32:y:2017:i:c:p:17-29 is not listed on IDEAS
    5. Michael J. Seiler & David M. Harrison, 2011. "Perceived Versus Actual Susceptibility to Normative Influence in the Presence of DefaultingLandlords," Review of Behavioral Finance, Emerald Group Publishing, vol. 3(2), pages 55-77, September.
    6. Zou, Liping & Tang, Tiantian & Li, Xiaoming, 2016. "The stock preferences of domestic versus foreign investors: Evidence from Qualified Foreign Institutional Investors (QFIIs) in China," Journal of Multinational Financial Management, Elsevier, vol. 37, pages 12-28.
    7. Campbell, John Y. & Ramadorai, Tarun & Schwartz, Allie, 2009. "Caught on tape: Institutional trading, stock returns, and earnings announcements," Journal of Financial Economics, Elsevier, vol. 92(1), pages 66-91, April.
    8. repec:pal:assmgt:v:17:y:2016:i:1:d:10.1057_jam.2015.38 is not listed on IDEAS
    9. Park, Tae-Jun & Lee, Youngjoo & Song, Kyojik “Roy”, 2014. "Informed trading before positive vs. negative earnings surprises," Journal of Banking & Finance, Elsevier, vol. 49(C), pages 228-241.
    10. Kadan, Ohad & Madureira, Leonardo & Wang, Rong & Zach, Tzachi, 2012. "Analysts' industry expertise," Journal of Accounting and Economics, Elsevier, vol. 54(2), pages 95-120.
    11. Jared DeLisle, R. & Morscheck, J.D. & Nofsinger, John R., 2014. "Share repurchases and institutional supply," Journal of Corporate Finance, Elsevier, vol. 27(C), pages 216-230.
    12. Noman, Abdullah & Naka, Atsuyuki & Zirek, Duygu, 2017. "Examining return predictability of industry style portfolios with prior return relative to a benchmark," The Quarterly Review of Economics and Finance, Elsevier, vol. 63(C), pages 193-203.
    13. Choi, Nicole & Sias, Richard W., 2009. "Institutional industry herding," Journal of Financial Economics, Elsevier, vol. 94(3), pages 469-491, December.
    14. repec:eee:ememar:v:33:y:2017:i:c:p:62-78 is not listed on IDEAS
    15. Cho, Sungjun & Hyde, Stuart & Nguyen, Ngoc, 2015. "Time-varying regional and global integration and contagion: Evidence from style portfolios," International Review of Financial Analysis, Elsevier, vol. 42(C), pages 109-131.
    16. Chao, Hsiao-Ying & Collver, Charles & Limthanakom, Natcha, 2012. "Global style momentum," Journal of Empirical Finance, Elsevier, vol. 19(3), pages 319-333.
    17. Broman, Markus S., 2016. "Liquidity, style investing and excess comovement of exchange-traded fund returns," Journal of Financial Markets, Elsevier, vol. 30(C), pages 27-53.
    18. Hao Jiang & Michela Verardo, "undated". "Does herding behavior reveal skill? An analysis of mutual fund performance," FMG Discussion Papers dp720, Financial Markets Group.
    19. Jame, Russell & Tong, Qing, 2014. "Industry-based style investing," Journal of Financial Markets, Elsevier, vol. 19(C), pages 110-130.

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