Mutual Fund Trading Pressure: Firm‐Level Stock Price Impact and Timing of SEOs

By Mozaffar Khan, Leonid Kogan, George Serafeim. 2012

229 citations recorded by the source corpus.

We use price pressure resulting from purchases by mutual funds with large capital inflows to identify overvalued equity. This is a relatively exogenous overvaluation indicator as it is associated with who is buying – buyers with excess liquidity – rather than what is being purchased. We document substantial stock price impact associated with purchases by high-inflow mutual funds, and find the probability of an SEO, insider sales, and the probability of a stock-based acquisition increase significantly in the four quarters following the mutual fund buying pressure. These results provide new evidence that firm managers are able to identify and exploit overvalued equity.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/10220c219bbe13575c29cce9c3cfc42928a0cb9b

Citations in the corpus

• Commonality in Liquidity: A Demand-Side Explanation (2016, unknown): “This creates buying or selling pressure for those stocks typically owned and traded by mutual funds (Coval and 5 Stafford, 2007, Khan, Kogan, and Serafeim, 2011, and Ben-Rephael, Kandel, and Wohl, 2011).”
• Investor Horizons and Corporate Policies (2013, unknown): “As our fifth and sixth proxies, we use future excess returns (see Baker, Stein, and Wurgler (2003), Polk and Sapienza (2009)) and mutual fund flows (see Edmans, Goldstein, and Jiang (2012), Khan, Kogan, and Serafeim (2012)).”
• Institutional Investors and Stock Return Anomalies (2016, unknown): “First, we are primarily interested in discretionary trades of institutions, and changes in the number of institutions holding a stock are less likely to be driven by nondiscretionary considerations such as investor flow [Khan et al. (2012)] and portfolio rebalancing in comparison to changes in the f”