DP6390 Caught On Tape: Institutional Trading, Stock Returns, and Earnings Announcements
Author(s): | John Y Campbell, Tarun Ramadorai, Allie Schwartz |
Publication Date: | July 2007 |
Keyword(s): | earnings announcements, institutions, liquidity, post-earnings-announcement-drift, trading |
JEL(s): | G12, G14 |
Programme Areas: | Financial Economics |
Link to this Page: | cepr.org/active/publications/discussion_papers/dp.php?dpno=6390 |
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.