Short-term trading skill: An analysis of investor heterogeneity and execution quality

Mehmet Sağlam, Ciamac C. Moallemi and Michael G. Sotiropoulos

Journal of Financial Markets, 2019, vol. 42, issue C, 1-28

Abstract: We examine short-horizon return predictability using a novel data set of institutional trades on large-cap U.S. stocks. We estimate investor-specific short-term trading skill and find that there is pronounced heterogeneity in predicting short-term returns among institutional investors. Incorporating short-term predictive ability, our model explains much higher fraction of variation in asset returns. Ignoring the heterogeneity in short-term trading skill can have major implications in modeling price impact. We uncover several stylized trading patterns of skilled trading: skilled investors choose larger trade sizes, avoid dark pools, and trade fewer stocks on any given day, but they do not time high-liquidity periods.

Keywords: Short-term trading skill; Price impact; Execution costs (search for similar items in EconPapers)
JEL-codes: G12 G14 G24 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:42:y:2019:i:c:p:1-28

DOI: 10.1016/j.finmar.2018.12.002

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