Who Reacts to News?

Doina Chichernea, Collin Gilstrap (), Kershen Huang () and Alex Petkevich ()
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Doina Chichernea: Reiman School of Finance, Daniels College of Business, University of Denver, Denver, CO 80210, United States
Collin Gilstrap: Neff Department of Finance, College of Business and Innovation, University of Toledo, Toledo, OH 43606, United States
Alex Petkevich: Neff Department of Finance, College of Business and Innovation, University of Toledo, Toledo, OH 43606, United States

Quarterly Journal of Finance (QJF), 2019, vol. 09, issue 01, 1-43

Abstract: We show that the positive relation between firm-level cash-flow news and institutional ownership documented by [Cohen et al., Journal of Financial Economics 66, 409–462.] is mostly driven by short-horizon investors. Short-term institutions trade to incorporate cash-flow related information into prices and potentially reduce under-reaction to cash-flow news. In contrast, long-term institutions are more sensitive to discount-rate news, consistent with the idea that their strategy is to realize the long-term expected returns and that they care more about changes in their opportunity set. Our results support the premise that short- and long-horizon institutions are potentially trading with each other based on their opposing preferences for news.

Keywords: Cash-flow news; discount-rate news; institutional ownership; investment horizon (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (1)

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DOI: 10.1142/S2010139219400020

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