Of Shepards, Sheep, and the Cross-Autocorrelations in Equity Returns

Posted: 12 May 2000

See all articles by S.G. Badrinath

S.G. Badrinath

San Diego State University; IIM-Bangalore

Jayant R. Kale

Georgia State University

Thomas H. Noe

University of Oxford - Said Business School; University of Oxford - Balliol College; Bank of Finland; European Corporate Governance Institute

Abstract

We present an economic mechanism, and supportive empirical evidence, for the transmission of information between equity securities first documented by Lo and MacKinlay (1990). It is argued that the past returns on stocks held by informed institutional traders will be positively correlated with the contemporaneous returns on stocks held by noninstitutional uninformed traders. Evidence consistent with this hypothesis is then presented. We document that the returns on the portfolio of stocks with the highest level of institutional ownership lead the returns on portfolios of stocks with lower levels of institutional ownership. This effect persists after firm size is controlled for and is apparent at longer lags than the size-related lag effects documented in Lo and MacKinlay (1990).

JEL Classification: G1

Suggested Citation

Badrinath, Swaminathan G. and Kale, Jayant Raghunath and Noe, Thomas H., Of Shepards, Sheep, and the Cross-Autocorrelations in Equity Returns. Available at SSRN: https://ssrn.com/abstract=5710

Swaminathan G. Badrinath

San Diego State University ( email )

5500 Campanile Drive
San Diego, CA 92182-8236
United States
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IIM-Bangalore ( email )

Bannerghatta Road
Bangalore, Karnataka 560076
India
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Jayant Raghunath Kale

Georgia State University ( email )

Robinson College of Business
University Plaza
Atlanta, GA 30303-3083
United States
404-413-7345 (Phone)
404-413-7312 (Fax)

Thomas H. Noe (Contact Author)

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 3BJ
United Kingdom

University of Oxford - Balliol College ( email )

Broad St
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United Kingdom

Bank of Finland ( email )

P.O. Box 160
FIN-00101 Helsinki
Finland

European Corporate Governance Institute ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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