Institutional Trading and Stock Return Autocorrelation: Empirical Evidence on Polish Pension Fund Investors' Behavior

Abstract

In this paper, we extend the empirical finance literature on the influence of institutional traders by investigating the impact of Polish pension funds trading on individual stock return autocorrelation. The pension reform in 1999 and the associated increase in institutional traders' investment activities provides the unique opportunity to receive additional insight into the behavior of institutional investors in an emerging capital market. Performing a variant of the event study methodology we find only very little empirical evidence supporting existing theories predicting positive return autocorrelation due to the influence of institutional traders' investment activities. Rather, our cross-sectional analysis reveals a negative relationship between the trading of pension funds and autocorrelation in returns of individual stocks.

Keywords: Institutional trading, pension funds, return autocorrelation, Polish stock market

JEL Classification: G14, G23