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Investor heterogeneity and trading
Author(s) -
Knyazeva Anzhela,
Knyazeva Diana,
Kostovetsky Leonard
Publication year - 2018
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/eufm.12169
Subject(s) - sophistication , institutional investor , business , monetary economics , financial economics , economics , finance , corporate governance , social science , sociology
Institutional investors play a crucial role in the information environment of firms. We argue that heterogeneity in the information ability of institutional investors has a significant impact on trading around information releases. We propose novel measures of within‐firm investor heterogeneity and find that investor heterogeneity increases abnormal trading volume around news, holding constant the average levels of investor sophistication. We also find larger spread reductions around announcements for firms with greater investor heterogeneity. The effect of investor heterogeneity on trading continues to hold after accounting for total institutional ownership, the presence of certain types of institutional investors, and analyst coverage.