Economics at your fingertips  

Avoiding Idiosyncratic Volatility: Flow Sensitivity to Individual Stock Returns

Marco Di Maggio, Francesco Franzoni, Shimon Kogan and Ran Xing

No 31360, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Despite positive and significant earnings announcement premia, we find that institutional investors reduce their exposure to stocks before earnings announcements. A novel result on the sensitivity of flows to individual stock returns provides a potential explanation. We show that extreme announcement returns for an individual holding lead to substantial outflows, controlling for overall performance, and they increase the probability of managers leaving the fund. Reducing the exposure to these stocks before the announcement mitigates the outflows. We build a model to describe and quantify this tradeoff. Overall, the paper identifies a new dimension of limits to arbitrage for institutions.

JEL-codes: G12 G23 (search for similar items in EconPapers)
Date: 2023-06
New Economics Papers: this item is included in nep-fmk
Note: AP
References: Add references at CitEc

Downloads: (external link) (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at Free access is also available to older working papers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Ordering information: This working paper can be ordered from
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().

Page updated 2024-05-23
Handle: RePEc:nbr:nberwo:31360