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Portfolio Transitions and Stock Price Dynamics

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  • Anna Obizhaeva

    (Robert H. Smith School of Business, University of Maryland)

Abstract

This paper employs a proprietary data set of portfolio transitions to analyze the short run price-volume relation and its association with the long run performance of newly hired and terminated managers. Unique to our study is its focus on price dynamics that is not affected by potential endogeneity of trading decisions. In the short run, purchases of new stocks induce permanent price increases. Such price changes are especially pronounced for large orders as well as for stocks with a high degree of information asymmetry and negative past returns. In contrast, sales of legacy stocks induce only transitory price declines. In the long run, the evidence shows that institutional sponsors are able to hire managers that are, on average, more skilled than the terminated ones. The apparent benefits of portfolio transitions, however, do not exceed transaction costs.

Suggested Citation

  • Anna Obizhaeva, 2009. "Portfolio Transitions and Stock Price Dynamics," Working Papers w0224, Center for Economic and Financial Research (CEFIR).
    • Handle: RePEc:cfr:cefirw:w0224
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    File URL: http://www.cefir.ru/papers/WP224.pdf
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    1. Tugkan Tuzun, 2013. "Are leveraged and inverse ETFs the new portfolio insurers?," Finance and Economics Discussion Series 2013-48, Board of Governors of the Federal Reserve System (U.S.).
    2. C. Gomes & H. Waelbroeck, 2015. "Is market impact a measure of the information value of trades? Market response to liquidity vs. informed metaorders," Quantitative Finance, Taylor & Francis Journals, vol. 15(5), pages 773-793, May.

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    More about this item

    Keywords

    institutional trading; price impact; trading costs;
    All these keywords.

    JEL classification:

    • 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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