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Valuation uncertainty, market sentiment and the informativeness of institutional trades

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  • Yang, Lisa (Zongfei)
  • Goh, Jeremy
  • Chiyachantana, Chiraphol

Abstract

Prior studies indicate that institutional investors are informed, in the sense that their trades predict price changes. In this study we show that return predictive ability of institutions arises (after controlling for size, book-to-market, and momentum) mainly from institutional sales of hard-to-value stocks during periods of positive market sentiment. These results support the notion that these stocks tend to be overvalued during periods of bullish market sentiment, and institutions contribute to market efficiency by identifying and trading on these overpriced stocks.

Suggested Citation

  • Yang, Lisa (Zongfei) & Goh, Jeremy & Chiyachantana, Chiraphol, 2016. "Valuation uncertainty, market sentiment and the informativeness of institutional trades," Journal of Banking & Finance, Elsevier, vol. 72(C), pages 81-98.
    • Handle: RePEc:eee:jbfina:v:72:y:2016:i:c:p:81-98
    DOI: 10.1016/j.jbankfin.2016.07.009
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    More about this item

    Keywords

    Valuation uncertainty; Sentiment; Institutional trades; Short selling; Market efficiency;
    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
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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