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A Better Measure Of Institutional Informed Trading
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Book Synopsis A Better Measure of Institutional Informed Trading by : Hui Guo
Download or read book A Better Measure of Institutional Informed Trading written by Hui Guo and published by . This book was released on 2014 with total page 57 pages. Available in PDF, EPUB and Kindle. Book excerpt: Although many studies show that the presence of institutional investors facilitates the incorporation of accounting information into financial markets, the evidence of informed trading by institutions is rather limited in the extant literature. We address these inconsistent findings by proposing PC_NII, percentage changes in the number of a stock's institutional investors, as a novel informed trading measure. PC_NII is better able to detect informed trading than are changes in institutional ownership (∆IO) -- the measure commonly used in previous studies -- because (1) entries and exits are usually triggered by substantive private information and (2) only a small fraction of institutions have superior information. As conjectured, PC_NII subsumes the information content of ∆IO and other institutional trading and herding measures in the forecast of stock returns, and its strong predictive power for stock returns reflects mainly its close correlation with future earnings surprises. We also show that PC_NII helps address empirical issues that require a reliable measure of institutional informed trading.
Book Synopsis Informed Institutional Trading and News Announcements by : Guohua Li
Download or read book Informed Institutional Trading and News Announcements written by Guohua Li and published by . This book was released on 2009 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation studies the daily institutional investors trading patterns before and after public news announcements in the US equity market, such as Merger and Acquisition announcement and release of macroeconomic indicators. Do institutional investors have inside information, or do they have superior models before news announcement? Using a high frequency institutional trading dataset that combines intraday NYSE Trades and Quotes (TAQ) data with the quarterly institutional ownership report (13F) by a reduced-form model, this dissertation tests the hypothesis of institutional investors trading on inside information 1993 to 2004. I find that most institutional investors are informed traders who accumulate shares before good news or before takeover announcements as early as 30 days ahead. Institutional investors do not have superior models in that they only buy the actual future targets and sell the forecasted "rumor" stocks from an acquisition probability model. By reversing their positions on and after the announcement day, they realize positive profits. Further, I confirm that the pre-event trading pattern of institutional investors is associated with stocks that have high probability of informed trading.
Book Synopsis Individual and Institutional Informed Trading in Competing Firms Around Earnings Announcements by : Priyantha Mudalige
Download or read book Individual and Institutional Informed Trading in Competing Firms Around Earnings Announcements written by Priyantha Mudalige and published by . This book was released on 2016 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study investigates individual and institutional trading activities in competing firms to infer informed trading. We find evidence for individual and institutional informed trading in competing firms around earnings announcements. The evidence is stronger prior to announcements than after announcements. Magnitude of institutional (individual) net order flow coefficient decreases (increases) with lag length, suggesting that institutional trading captures information faster than individual trading. Individual net order flow transmit information cross-stock when competitor is a small firm while institutional net order flow conveys information cross-stock irrespective of firm size. Our results will be informative for regulators with regard to insider trading laws and provide insights for market participants on the impact of individual and institutional trading on cross-stock price discovery process.
Book Synopsis Does the Probability of Informed Trading Measure Informed Trading? by : James Petchey
Download or read book Does the Probability of Informed Trading Measure Informed Trading? written by James Petchey and published by . This book was released on 2015 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: Recent research has raised concerns over whether the probability of informed trading model (PIN) is an appropriate proxy of information asymmetry. We investigate PIN and test whether the model can detect illegal insider trading prior to M&A announcements. We then compare the performance of PIN to an alternative proxy, the PIN asymmetric autoregressive conditional duration model (PIN-AACD), to determine if this model offers a better proxy for informed trading. We find that PIN does not measure informed trading prior to M&A announcements, and that PIN-AACD offers a better measure of information asymmetry.
Book Synopsis Institutional Stakeholdings and Better-Informed Traders at Earnings Announcements by : Ashiq Ali
Download or read book Institutional Stakeholdings and Better-Informed Traders at Earnings Announcements written by Ashiq Ali and published by . This book was released on 2008 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: Utama and Cready (1997) use total institutional ownership to proxy for the proportion of better-informed traders, an important determinant of trading around earnings announcements. We argue that institutions holding small stakes cannot justify the fixed cost of developing private predisclosure information. Also, institutions with large stakes generally do not trade around earnings announcements since they are dedicated investors or face regulations that make informed trading difficult. However, institutions holding medium stakes have incentives to develop private predisclosure information and trade on it; we show that their ownership is a finer proxy for the proportion of better-informed traders at earnings announcements.
Book Synopsis Which Institutional Investors Trade Based on Private Information About Earnings and Returns? by : Brian J. Bushee
Download or read book Which Institutional Investors Trade Based on Private Information About Earnings and Returns? written by Brian J. Bushee and published by . This book was released on 2011 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: Recent work presents evidence that certain groups of institutional investors are able to trade profitably based on private information about earnings and returns. We contribute to this literature in three ways. First, we test whether certain private information proxies are consistent with the creation and liquidation of positions based on private information. Second, we introduce private information proxies that reflect the size and nature of an institution's position in each portfolio firm. Third, we use a methodology that examines multiple investor characteristics simultaneously at the institution-firm-level. We find that changes in ownership by institutions that have large positions in a specific firm are consistent with trading based on private information. However, other previously-documented proxies for private information produce results that are more consistent with risk-based trading (e.g., investment style, portfolio turnover) or that are insignificant in the presence of the other proxies (e.g., fiduciary type). We also find that informed trading is more prevalent in return-based measures (vs. earnings-based measures) and in smaller firms. Tests for interactions among private information proxies reveal that informed trading is most evident when the large positions in firms are newly initiated and when they are taken by investment advisers and by large institutions. Finally, we find that institutions following growth strategies exhibit momentum trading in positions held less than one year and informed trading in positions held more than one year, suggesting that the information advantages to investment styles accrue over time.
Book Synopsis Informed Trading, Institutional Trading, and Spread by : Malay K. Dey
Download or read book Informed Trading, Institutional Trading, and Spread written by Malay K. Dey and published by . This book was released on 2013 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: We use transactions data from TORQ and present empirical evidence on the cross sectional relation between institutional trading and effective spread after controlling for trading volume denoting inventory and order processing costs and probability of informed trading (PIN) denoting risk of informed trading. We find that volume, information risk premium denoted by PIN times price, and institutional trading are significant determinants of bid ask spreads for a sample of 65 NYSE listed securities. We also find that institutional trading increases the adverse selection component but does not have a significant effect on order processing costs. The net effect of institutional trading on spread depends on the dominant effect, information increasing adverse selection costs or liquidity decreasing order processing costs. In our sample the increase in adverse selection costs trumps the decrease in order processing costs and as a consequence spread increases as institutional trading rises.
Book Synopsis Are Institutional Investors and Analysts Informed Traders? by : Susan M. Mangiero
Download or read book Are Institutional Investors and Analysts Informed Traders? written by Susan M. Mangiero and published by . This book was released on 1997 with total page 258 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Investors' Horizon and Stock Prices by : Sahar Parsa
Download or read book Investors' Horizon and Stock Prices written by Sahar Parsa and published by . This book was released on 2011 with total page 150 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of three essays on the relation between investors' trading horizon and stock prices. The first chapter explores the theoretical relation between the horizon of traders and the negative externality generated by their activity on the information revealed by stock prices. The last two chapters focus on the empirical relation between institutional investors trading frequency and stock prices behaviour. The first chapter examines how short term trading impacts the aggregation of information in financial markets. I develop a model where short-term traders, in an attempt to learn about the average beliefs of future market participants, make the price relatively more noisy. This typically introduces a negative informational externality on long-term investors. I show that (i) as the horizon of the informed traders decreases, the price becomes relatively less precise; (ii) an inflow of informed traders in the market can decrease the informativeness of the price when the traders have a relatively short horizon or the market is expected to be thin in the future; (iii) finally, as rational informed short-term traders have access to an extra source of information about the future price, they end up creating more noise and a decrease in the informativeness of the price might result. Thus, paradoxically, more informed trading could lead to a less informative price. Among scholars, practitioners and policy makers, investor short-termism and high frequency trading have been associated with excess volatility in financial markets and with a disconnect between asset prices and fundamentals. Motivated by this observation, in Chapter 2 I construct a novel measure of the intrinsic frequency of trading for each of the large US institutional investors (13-F institutions) using Thomson-Reuters Institutional Holdings quarterly data for the period 1980-2005. This measure controls for the market and portfolio characteristics and identifies an investor-specific fixed effect in the frequency of trading. I then study how the composition of these fixed effects impacts stock price behavior through their forecasting role in explaining the return and the return on equity (cash flow of a company) in the short run as well as the long run. I show that (i) the securities in which investors exhibit higher intrinsic trading frequency exhibit higher volatility, but (ii) this volatility is mainly driven by the cashflow component of the security prices. Further, (iii) the prices of the securities held by investors with a higher intrinsic trading frequency do not forecast the long-run return as opposed to the securities held by investors with a lower intrinsic trading frequency. As such, the prices mainly respond to the long-run return on equity. Overall, the results challenge the view that higher frequency of trading-a commonly used proxy for investor short-termnism-causes a disconnect between asset prices and fundamentals. Finally, in Chapter 3 (co-auhtored with Fernando Duarte) we show a novel relation between the institutional investors' intrinsic trading frequency-a commonly used proxy for the investors's investment horizon- and the cross-section of stock returns. We show that the 20$ of stocks with the lowest trading frequency earn mean returns that are 6 percentage points per year higher than the 20% of stocks that have the highest trading frequency. The magnitude and predictability of these returns persist or even increase when risk-adjusted by common indicators of systematic risks such as the Fama-French, liquidity or momentum factors. Our results show that the characteristics of stockholders affect expected returns of the very securities they hold, supporting the view that heterogeneity among investors is an important dimension of asset prices.
Book Synopsis Is Market Impact a Measure of the Information Value of Trades? Market Response to Liquidity Vs. Informed Trades by : Henri Waelbroeck
Download or read book Is Market Impact a Measure of the Information Value of Trades? Market Response to Liquidity Vs. Informed Trades written by Henri Waelbroeck and published by . This book was released on 2014 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine information, market impact and trade sizes using a data-set of institutional trades where approximately 1/4 of the orders are labeled as having been created for cash flow purposes. We find that during the execution the functional form and scale of market impact are similar for cash flows as for other trades. After the trade is completed, the impact of cash flows reverts almost completely on average in two to five days. For trades excluding cash flows price reversion is only a fraction of total impact: for every size, the price after reversion is, on average, equal to the average execution price, leaving no immediate profits after accounting for trading costs. Observed mark-to-market profits on merged orders from multiple portfolio managers and Nasdaq-listed stocks suggest that these trades are more informed than the average. Mark-to-market losses on cash flows, trades that follow momentum and additions to a prior position seeking to take advantage of an improved price reveal the low information content of these trades. The complete price reversion for uninformed trades suggests that prices cannot be manipulated as assumed in no-quasi-arbitrage arguments for the linearity of permanent impact. There is no permanent impact, only information that causes trades.
Book Synopsis Measuring the Probability of Informed Trading in an Order-Driven Auction Market and a Comprehensive Analysis on the Determinants of Informed Trading by : Tai Ma
Download or read book Measuring the Probability of Informed Trading in an Order-Driven Auction Market and a Comprehensive Analysis on the Determinants of Informed Trading written by Tai Ma and published by . This book was released on 2004 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this study, we are able to estimate the probability of informed trading on a transactional basis, which makes the hitherto difficult task of examining the transactional dynamics between informed trading, market depth and spread feasible. In addition, we have integrated the determinants of informed trading by a comprehensive analysis.We find that, as informed traders arrive, current volume and spread increase. This supports the clustering of trading hypothesis and provides empirical evidence to Admati and Pfleiderer (1988) viewpoint that both volatility and volume increase with informed trading. The VAR result suggests that uninformed traders avoid trading with the informed, and the decision of the uninformed depends on previous condition. The decision of the informed is based more on current situation and is attracted by price volatility.Overall, it is clear that the ultimate determinants of informed trading lies with the firm's financial quality and ownership structure. The condition of the market influences the timing of the informed trading, rather than the level of informed trading between firms.
Book Synopsis Empirical Market Microstructure by : Joel Hasbrouck
Download or read book Empirical Market Microstructure written by Joel Hasbrouck and published by Oxford University Press. This book was released on 2007-01-04 with total page 209 pages. Available in PDF, EPUB and Kindle. Book excerpt: The interactions that occur in securities markets are among the fastest, most information intensive, and most highly strategic of all economic phenomena. This book is about the institutions that have evolved to handle our trading needs, the economic forces that guide our strategies, and statistical methods of using and interpreting the vast amount of information that these markets produce. The book includes numerous exercises.
Book Synopsis Measuring Institutional Trading Costs and the Implications for Finance Research by : Gregory W. Eaton
Download or read book Measuring Institutional Trading Costs and the Implications for Finance Research written by Gregory W. Eaton and published by . This book was released on 2020 with total page 63 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using proprietary institutional trade data, we construct a price impact measure that represents the costs faced by institutional investors. We show that many widely used liquidity measures do not adequately capture institutional trading costs. We then find that institutional trading costs are not dramatically impacted by decimalization, casting doubt on the widely used identification strategy that employs decimalization as an exogenous shock to liquidity, particularly institutional liquidity. Indeed, we find that conclusions from prior research are significantly altered when we measure liquidity using institutional trading data.
Book Synopsis Decomposing the Probability of Informed Trading Measure by : Wang Chun Wei
Download or read book Decomposing the Probability of Informed Trading Measure written by Wang Chun Wei and published by . This book was released on 2018 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper aims to analyze the dynamics of information asymmetry in market microstructure through the Easley et al. (2002)'s PIN framework in two segments. Firstly, we test to see if factors such as size, value and illiquidity can be used to explain PIN. Secondly, we extend beyond the traditional literature by examining individual components of PIN, especially the informed and uninformed trade intensities. We contribute to the literature by documenting non-linear relationships between trade intensities, and their autocorrelation functions. Our study show that uninformed intensity is more persistent than informed trading and that there exists statistically significant spillover effects from informed trading into liquidity trades, suggesting that liquidity trades lag behind that of informed trades.
Book Synopsis Economic Effects of Transparency in International Equity Markets by : Mark Lang
Download or read book Economic Effects of Transparency in International Equity Markets written by Mark Lang and published by Now Publishers Inc. This book was released on 2011 with total page 79 pages. Available in PDF, EPUB and Kindle. Book excerpt: This monograph reviews the existing accounting, finance and economics literature on the economic effects of transparency in international equity markets, considers aspects of an international setting that make it an interesting environment for investigating these effects, and suggests directions for future research
Book Synopsis Measuring the Probability of Informed Trading by : Harald Henke
Download or read book Measuring the Probability of Informed Trading written by Harald Henke and published by . This book was released on 2004 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis A New Empirical Measure of Institutional Trading Volume and Its Applications by : Chen He
Download or read book A New Empirical Measure of Institutional Trading Volume and Its Applications written by Chen He and published by . This book was released on 2005 with total page 152 pages. Available in PDF, EPUB and Kindle. Book excerpt:
