Institutional Trading and Share Returns

Foster, F. Douglas; Gallagher, David R.; Looi, Adrian

doi:10.2139/ssrn.675502

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Institutional Trading and Share Returns

EFA 2005 Moscow Meetings

50 Pages Posted: 28 Feb 2005 Last revised: 27 Feb 2011

See all articles by F. Douglas Foster

F. Douglas Foster

The University of Sydney - Discipline of Finance; Financial Research Network (FIRN)

Adrian Looi

UNSW Australia Business School, School of Banking and Finance

Date Written: November 8, 2005

Abstract

Using a unique database of daily transactions from Australian equity managers, we investigate the relation between institutional trading and share returns. The 34 institutional investors included in our sample exhibit a statistically and economically significant ability to predict large capitalization share returns for the ten days following their trades. Detailed analysis indicates that investment manager style is important in understanding the link between institutional trading and stock returns. The contemporaneous relation between institutional trading and returns depends on trade size, broker use, and investment style. We find growth-oriented managers are momentum traders, while style-neutral and value managers are contrarian.

Keywords: Trading behavior, informed trading, market impact, institutional trading

JEL Classification: G14, G23

Suggested Citation: Suggested Citation

Foster, F. Douglas and Gallagher, David R. and Looi, Adrian, Institutional Trading and Share Returns (November 8, 2005). EFA 2005 Moscow Meetings, Available at SSRN: https://ssrn.com/abstract=675502 or http://dx.doi.org/10.2139/ssrn.675502