Institutional Investors and Equity Returns

Download or read book Institutional Investors and Equity Returns written by Xuemin (Sterling) Yan and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We show that the positive relation between institutional ownership and future stock returns documented in Gompers and Metrick () is driven by short-term institutions. Furthermore, short-term institutions' trading forecasts future stock returns. This predictability does not reverse in the long run and is stronger for small and growth stocks. Short-term institutions' trading is also positively related to future earnings surprises. By contrast, long-term institutions' trading does not forecast future returns, nor is it related to future earnings news. Our results are consistent with the view that short-term institutions are better informed and they trade actively to exploit their informational advantage.