Working Paper: CEPR ID: DP6390
Authors: John Y. Campbell; Tarun Ramadorai; Allie Schwartz
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.
Keywords: earnings announcements; institutions; liquidity; post-earnings announcement drift; trading
JEL Codes: G12; G14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| daily institutional trading (G14) | recent daily returns (G14) |
| daily institutional trading (G14) | longer-term past daily returns (C41) |
| daily institutional trading (G14) | near-term daily returns (G17) |
| daily institutional trading (G14) | longer-term daily returns (C41) |
| institutional sells (G23) | positive returns next day (G17) |
| institutional purchases (L14) | negative returns (G12) |
| institutional trading (G14) | earnings surprises (G14) |
| institutional trading (G14) | post-earnings announcement drift (G14) |