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Decision-based trades: An analysis of institutional investors’ information advantages

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  • Jiao, Yawen

Abstract

Investors with future-return-related information use it to strategically adjust past decisions that no longer fit. Using this rationale, we decompose institutional trading into decision-based trades (adjusting past portfolio decisions) and implied trades (implied by past portfolio decisions). Decision-based trades positively predict future stock returns and earnings surprises whereas implied trades negatively predict returns. An institutional investor’s tendency to engage in decision-based trading and the performance of decision-based trades for the top 20% of institutions are highly persistent. The results illustrate institutional investors’ informational advantages in stock markets.

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  • Jiao, Yawen, 2022. "Decision-based trades: An analysis of institutional investors’ information advantages," Journal of Empirical Finance, Elsevier, vol. 68(C), pages 104-115.
    • Handle: RePEc:eee:empfin:v:68:y:2022:i:c:p:104-115
    DOI: 10.1016/j.jempfin.2022.07.009
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    More about this item

    Keywords

    Institutional investors; Informational advantages; Trading strategies;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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