Institutional Investors and Equity Returns: Are Short-Term Institutions Better Informed?

By Xuemin Yan, Zhe Zhang. 2009

916 citations recorded by the source corpus.

We show that the positive relation between institutional ownership and future stock returns documented in Gompers and Metrick (2001) 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. The Author 2007. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oxfordjournals.org., Oxford University Press.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/3baf1d8b7fc92d8dcc0a7329f60ef439b62dce26

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Citations in the corpus

Corporate Social Performance, Analyst Stock Recommendations, and Firm Future Returns (2015, neutral): “This variable assesses how many percentages of the firm’s shares are owned by institutions relative to the total shares outstanding of the firm (Yan and Zhang, 2009).”
Institutional Investment Horizon and Investment-Cash Flow Sensitivity (2012, background): “At the same time, institutions with a short-term horizon are less likely to switch to a long-term horizon because of their tendency to actively engage in informed trading (Yan and Zhang, 2009).”
Investor Horizons and Corporate Policies (2013, background): “Other research finds that the trading of short-term investors is more responsive to corporate news (Hotchkiss and Strickland (2003) and Yan and Zhang (2009)) and aggregate liquidity shocks (Cella, Ellul, and Giannetti (2011)).”
Institutional Investor Stability and Crash Risk: Monitoring versus Short-Termism? (2013, background): “Yan and Zhang (2009) show that short-term institutional investors are better informed than long-term institutional investors and that they actively trade to exploit their informational advantage.”
The Interim Trading Skills of Institutional Investors (2011, background): “Because money manager funds trade more actively, we expect them to display higher interim trading performance (Yan and Zhang (2009)).”
How disclosure quality affects the level of information asymmetry (2007, neutral): “In addition, evidence in Ke et al. (2006) and Yan and Zhang (2006) suggests that only actively trading institutional investors with short investment horizons are able to generate positive abnormal returns, which is consistent with their trading on the basis of private information that is quickly i”
Local institutional investors, information asymmetries, and equity returns (2010, methodology): “…suggest that for certain types of institutional investors, their return predictive ability is due to their informational advantages, extending prior research on the informational role of institutional investors (Nofsinger and Sias, 1999; Bennett, Sias, and Starks, 2003; Yan and Zhang, 2009).”
Financial Reporting Opacity and Informed Trading by International Institutional Investors (2012, methodology): “Similarly, Yan and Zhang (2009) argues that investors with superior information and the ability to regularly identify mispriced stocks have the incentive to trade more frequently to exploit their skill.”
Institutional ownership stability and BHC performance (2008, neutral): “In contrast, unstable (short-term) institutional investors tend to be involved in frequent trading based on information (Yan and Zhang, 2007).”
Blockholders and Corporate Governance (2014, positive): “Gallagher, Gardner & Swan (2013) find that blockholders who trade frequently generate trading profits, and Yan & Zhang (2009) find that frequent traders are more informed (in terms of their trades predicting future stock returns) than those who rarely trade.”