Caught on Tape: Institutional Trading, Stock Returns, and Earnings Announcements

65 Pages Posted: 5 Jul 2007

See all articles by John Y. Campbell

John Y. Campbell

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Tarun Ramadorai

Imperial College London; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Allie Schwartz

Harvard University

Multiple version iconThere are 2 versions of this paper

Date Written: July 2007

Abstract

Many questions about institutional trading can only be answered if one can track high-frequency changes in institutional ownership. In the U.S., however, institutions are only required to report their ownership quarterly in 13-F filings. We infer daily institutional trading behavior from the tape, the Transactions and Quotes database of the New York Stock Exchange, using a sophisticated method that best matches quarterly 13-F data. We find that daily institutional trades are highly persistent and respond positively to recent daily returns but negatively to longer-term past daily returns. Institutional trades, particularly sells, appear to generate short-term losses - possibly reflecting institutional demand for liquidity - but longer-term profits. One source of these profits is that institutions anticipate both earnings surprises and post-earnings-announcement drift. These results are different from those obtained using a standard size cutoff rule for institutional trades.

Keywords: institutions, trading, liquidity, earnings announcements, post-earnings-announcement-drift.

JEL Classification: G12, G14

Suggested Citation

Campbell, John Y. and Ramadorai, Tarun and Schwartz, Allie, Caught on Tape: Institutional Trading, Stock Returns, and Earnings Announcements (July 2007). Available at SSRN: https://ssrn.com/abstract=998244 or http://dx.doi.org/10.2139/ssrn.998244

John Y. Campbell

Harvard University - Department of Economics ( email )

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Tarun Ramadorai (Contact Author)

Imperial College London ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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Allie Schwartz

Harvard University ( email )

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