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Institutional Trade Persistence and Long‐Term Equity Returns
Author(s) -
DASGUPTA AMIL,
PRAT ANDREA,
VERARDO MICHELA
Publication year - 2011
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.2010.01644.x
Subject(s) - herding , stock (firearms) , equity (law) , economics , institutional investor , persistence (discontinuity) , quarter (canadian coin) , portfolio , financial economics , monetary economics , econometrics , corporate governance , finance , geography , geotechnical engineering , archaeology , engineering , political science , law , forestry
Recent studies show that single‐quarter institutional herding positively predicts short‐term returns. Motivated by the theoretical herding literature, which emphasizes endogenous persistence in decisions over time, we estimate the effect of multiquarter institutional buying and selling on stock returns. Using both regression and portfolio tests, we find that persistent institutional trading negatively predicts long‐term returns: persistently sold stocks outperform persistently bought stocks at long horizons. The negative association between returns and institutional trade persistence is not subsumed by past returns or other stock characteristics, is concentrated among smaller stocks, and is stronger for stocks with higher institutional ownership.