How Informed Are Actively Trading Institutional Investors? Evidence from Their Trading Behavior before a Break in a String of Consecutive Earnings Increases

Authors: BIN KE¹; KATHY PETRONI²

Source: Journal of Accounting Research, Volume 42, Number 5, December 2004 , pp. 895-927(33)

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Abstract:

We examine whether transient institutional investors (i.e., institutions that trade actively to maximize short-term profits) have information that allows them to predict a break in a string of consecutive quarterly earnings increases and thereby avoid the economically significant negative stock price response associated with the break announcement. We show that transient institutions predict the break at least one quarter in advance of the break quarter. We also provide evidence that is consistent with transient institutions obtaining information regarding the impending break from private communications with management.

Document Type: Research article

DOI: http://dx.doi.org/10.1111/j.1475-679X.2004.00160.x

Affiliations: 1: The Pennsylvania State University 2: Michigan States University.

Publication date: 2004-12-01