Decision-based trades: An analysis of institutional investors’ information advantages

Yawen Jiao

Journal of Empirical Finance, 2022, vol. 68, issue C, 104-115

Abstract: Investors with future-return-related information use it to strategically adjust past decisions that no longer fit. Using this rationale, we decompose institutional trading into decision-based trades (adjusting past portfolio decisions) and implied trades (implied by past portfolio decisions). Decision-based trades positively predict future stock returns and earnings surprises whereas implied trades negatively predict returns. An institutional investor’s tendency to engage in decision-based trading and the performance of decision-based trades for the top 20% of institutions are highly persistent. The results illustrate institutional investors’ informational advantages in stock markets.

Keywords: Institutional investors; Informational advantages; Trading strategies (search for similar items in EconPapers)
JEL-codes: G12 G14 G23 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:68:y:2022:i:c:p:104-115

DOI: 10.1016/j.jempfin.2022.07.009

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