The impacts of institutional ownership on stock returns
- 347 Downloads
The relation between institutional investors’ trading persistence and stock returns is still not clear. Despite the fact that previous studies have demonstrated the persistence of institutional trading can be short-term positively correlated with following stock returns, some empirical studies show that this short-term positive relation holds only under particular circumstances. Recently, Dasgupta et al. (J Finance 66:635–653, 2011) have even found that the persistence of institutional trading is associated with reversals in stock returns. To fill the gap in the literature, I use a unique monthly institutional ownership data to present new empirical evidence showing that institutional trading not only has a short-term positive impact on stock returns but can also have a long-term negative effect. Moreover, I find that stocks with the lower accumulated growth of institutional ownership tend to have greater momentum than stocks with higher such growth. A zero-investment strategy of buying stocks with ‘LOW’-decile institutional ownership and selling ‘HIGH’-decile ones can outperform the market and generate significant abnormal returns.
KeywordsInstitutional investors Herding Momentum effect
JEL ClassificationG11 G12 G14
We thank the seminar participants at National Chung Hsing University, Tohoku University, 2015 Taiwan Economics Research Summer Meeting, and 2016 Asian Meeting of the Econometric Society for their suggestions. Notably, we are grateful to the Editor, Bertrand Candelon, and an anonymous referee for their valuable comments.
Compliance with ethical standards
This study was funded by 2016 Nomura Foundation (AE-06) and JSPS KAKENHI 17K13759 JP.
Conflicts of interest
Chuang declares that he has no conflict of interest.
This article does not contain any studies with human participants or animals performed by any of the authors.
- Barroso P, Santa-Clara P (2015) Momentum has its moments. J Financ Econ 65:361–392Google Scholar
- Daniel KD, Moskowitz TJ (2013) Momentum crashes. Swiss Finance Inst Res Pap 14:13–61Google Scholar
- Grinblatt M, Titman S, Wermers R (1995) Momentum investment strategies, portfolio performance, and herding: a study of mutual fund behavior. Am Econ Rev 85:1088–1105Google Scholar
- Lakonishok J, Shleifer A, Vishny RW (1991) Window dressing by pension fund managers. Am Econ Rev 81:227–231Google Scholar