Caught On Tape: Institutional Trading, Stock Returns, and Earnings Announcements

John Y. Campbell (), Tarun Ramadorai () and Allie Schwartz

No 6390, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn, nep-mst and nep-rmg
Date: 2007-07
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