IQ from IP: simplifying search in portfolio choice

Huaizhi Chen, Lauren Cohen, Umit Gurun, Dong Lou and Christopher Malloy

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Using a novel database that tracks web traffic on the Security Exchange Commission's EDGAR server between 2004 and 2015, we show that institutional investors gather information on a very particular subset of firms and insiders, and their surveillance is very persistent over time. This tracking behavior has powerful implications for their portfolio choice and its information content. An institution that downloaded an insider trading filing by a given firm last quarter increases its likelihood of downloading an insider trading filing on the same firm by more than 41.3 percentage points this quarter. Moreover, the average tracked stock that an institution buys generates annualized alphas of over 12% relative to the purchase of an average non tracked stock. We find that institutional managers tend to track top executives and to share educational and locational commonalities with the specific insiders they choose to follow. Collectively, our results suggest that the information in tracked trades is important for fundamental firm value and is only revealed following the information-rich dual trading by insiders and linked institutions.

Keywords: tracked trades; return predictability; institutional trading; insider trading (search for similar items in EconPapers)
JEL-codes: G11 G14 G23 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2020-10-01
New Economics Papers: this item is included in nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (22)

Published in Journal of Financial Economics, 1, October, 2020, 138(1), pp. 118 - 137. ISSN: 0304-405X

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:101133

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