Institutional Ownership And The Extent To Which Stock Prices Reflect Future Earnings
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Institutional Ownership And The Extent To Which Stock Prices Reflect Future Earnings
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Author : James J. Jiambalvo
language : en
Publisher:
Release Date : 2001
Institutional Ownership And The Extent To Which Stock Prices Reflect Future Earnings written by James J. Jiambalvo and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2001 with categories.
Articles in the financial press suggest that institutional investors are overly focused on current profitability. This suggests that as institutional ownership increases, stock prices will reflect less current period information that is predictive of future period earnings. On the other hand, institutional investors are often characterized in academic research as sophisticated investors. Sophisticated investors should be better able to utilize current period information to predict future earnings compared to other owners. According to this characterization, as institutional ownership increases, stock prices should reflect more current period information that is predictive of future period earnings. Consistent with this latter view, we find that the extent to which stock prices lead earnings is positively related to the percentage of institutional ownership. This result holds after controlling for various factors that affect the relation between price and earnings. It also holds when we control for endogenous portfolio choices of institutions (e.g., institutional investors may be attracted to firms in richer information environments where stock prices tend to lead earnings). Further, a regression of stock returns on order backlog, conditional on the percentage of institutional ownership, indicates that institutional owners place more weight on order backlog compared to other owners. This is consistent with institutional owners using non-earnings information to predict future earnings. It also explains, in part, why prices lead earnings to a greater extent when there is a higher concentration of institutional owners.
Is Institutional Ownership Associated With Earnings Management And The Extent To Which Stock Prices Reflect Future Earnings
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Author : Shivaram Rajgopal
language : en
Publisher:
Release Date : 1999
Is Institutional Ownership Associated With Earnings Management And The Extent To Which Stock Prices Reflect Future Earnings written by Shivaram Rajgopal and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1999 with categories.
Articles in the financial press suggest that institutional investors are overly focused on short-term profitability leading mangers to manipulate earnings fearing that a short-term profit disappointment will lead institutions to liquidate their holdings. This paper shows, however, that the absolute value of discretionary accruals declines with institutional ownership. The result is consistent with managers recognizing that institutional owners are better informed than individual investors, which reduces the perceived benefit of managing accruals. We also find that as institutional ownership increases, stock prices tend to reflect a greater proportion of the information in future earnings relative to current earnings. This result is consistent with institutional investors looking beyond current earnings compared to individual investors. Collectively, the results offer strong evidence that managers do not manipulate earnings due to pressure from institutional investors who are overly focused on short-term profitability.
Fa Ren Chi Gu Yu Gu Jia Fan Ying Wei Lai Ying Yu Zi Xun Cheng Du Yi Tai Wan Ji Tuan Gong Si Yu Fei Ji Tuan Gong Si Wei Li
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Author : 王詠惠
language : zh-CN
Publisher:
Release Date : 2005
Fa Ren Chi Gu Yu Gu Jia Fan Ying Wei Lai Ying Yu Zi Xun Cheng Du Yi Tai Wan Ji Tuan Gong Si Yu Fei Ji Tuan Gong Si Wei Li written by 王詠惠 and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2005 with categories.
The Effect Of Investment Horizon On Institutional Investors Incentives To Acquire Private Information On Long Term Earnings
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Author : Bin Ke
language : en
Publisher:
Release Date : 2006
The Effect Of Investment Horizon On Institutional Investors Incentives To Acquire Private Information On Long Term Earnings written by Bin Ke and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2006 with categories.
We use quarterly institutional ownership changes to test the effect of investment horizon on institutional investors' incentives to acquire private information on long term earnings. Short horizon institutions' ownership changes contain private information on long term earnings, but only to the extent that such private information will be reflected in near term stock prices. There is little evidence that long horizon institutions' ownership changes contain private information on long term earnings that will be revealed in near term stock prices, but long horizon institutions' ownership changes contain private information on long term earnings that will be reflected in longer term stock prices.
Two Essays On Institutional Investors
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Author : Hoang Huy Nguyen
language : en
Publisher:
Release Date : 2007
Two Essays On Institutional Investors written by Hoang Huy Nguyen and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2007 with categories.
This dissertation consists of two essays investigating the trading by institutions and its impact on the stock market. In the first essay, I investigate why changes in institutional breadth predict return. I first show that changes in breadth are positively associated with abnormal returns over the following four quarters. I then demonstrate that this return predictability can be attributed to the information about the firms' future operating performance. When I examine different types of institutions independently, I find that the predictive power varies across the population of institutions. More specifically, institutions that follow active management style are better able to predict future returns than the passive institutions, and their predictive power appears to be associated with information about future earnings growth. These findings are consistent with the information hypothesis that changes in breadth of institutional ownership can predict return because they contain information about the fundamental value of firms. In the second essay, I examine institutional herding behavior and its impact on stock prices. I document that herds by institutions usually last for more than one quarter and that herds occur more frequently for small and medium size stocks. I find that after herds end, there are reversals in stocks returns for up to four quarters. The magnitude of reversals is positively related to the duration of herding, and negatively related to the price impact of current herding activity. This pattern in returns prevails for all sub-periods examined and is concentrated in small and medium size stocks. My findings suggest that institutional herding may destabilize stock prices.
Changes In Institutional Ownership And Subsequent Earnings Announcement Abnormal Returns
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Author : Ashiq Ali
language : en
Publisher:
Release Date : 2008
Changes In Institutional Ownership And Subsequent Earnings Announcement Abnormal Returns written by Ashiq Ali and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2008 with categories.
This study documents an association between changes in institutional ownership during a calendar quarter and abnormal returns at the time of subsequent announcements of quarterly earnings. The result is driven by the portfolio returns of the extreme deciles of changes in institutional ownership, suggesting that institutions trade based on information about future earnings, but that such trading is not widespread. We also find that the difference between earnings announcement returns of the extreme deciles of change in institutional ownership is much greater when change in institutional ownership of a stock is driven by relatively few institutions, measured using the skewness of the distribution of change in institutional ownership of the stock. This result suggests that when fewer differentially informed investors make disproportionately large purchases or sales of stocks, a greater amount of the information on which they base their trades is not impounded in prices until the subsequent earnings announcement. Finally, we show that our results obtain for institutional investors with short-term focus, such as independent advisors, investment companies and insurance companies, but not for institutional investors with long-term focus, such as internally managed pension funds, educational institutions, and private foundations. This result further supports our conclusions regarding informed trading by institutions based on information about forthcoming earnings.
Independent Institutional Investors And Equity Returns
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Author : Yawen Jiao
language : en
Publisher:
Release Date : 2009
Independent Institutional Investors And Equity Returns written by Yawen Jiao and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2009 with categories.
We find that the well-documented positive relation between institutional ownership and future equity returns comes almost entirely from independent institutional trading (i.e., change in equity ownership by independent institutions). Not only does independent institutional trading predict future stock returns with no long-run price reversal, it is also positively related to future earnings surprises (relative to analyst expectations) and earnings announcement abnormal returns. In contrast, grey institutions (which have existing or potential business relationships with firms in which they invest) have no such predictive power. Furthermore, the predictive power of independent institutional trading on future stock returns exists only among firms with high information asymmetry, but not among firms with low information asymmetry. Overall, our findings suggest that independent institutions have information advantages over grey institutions in the equity market.
Local Institutional Investors Information Asymmetries And Equity Returns
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Author : Bok Baik
language : en
Publisher:
Release Date : 2014
Local Institutional Investors Information Asymmetries And Equity Returns written by Bok Baik and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2014 with categories.
Using geographically proximate institutions as a close approximation to informed investors, this paper examines the informational role of institutional investors in stock markets. We find that both the level of and change in local institutional ownership predict future stock returns; in contrast, such predictive abilities are relatively weak for nonlocal institutional ownership. Moreover, the positive relation between local institutional holdings and stock performance is pronounced in firms with high information asymmetry. The positive relation is also more evident for holdings by institutions that are more likely to possess and exploit local information, such as local investment advisors, high local ownership institutions, and high local turnover institutions. Finally, we find that the stocks that local institutional investors hold (trade) earn higher excess returns around future earnings announcements than those that nonlocal institutional investors hold (trade). These findings suggest that geography proxies for the availability of information and allows local institutional investors to execute profitable trades based on their superior information.
The Performance Of Initial Public Offerings And The Cross Section Of Institutional Ownership
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Author : Arik Ben Dor
language : en
Publisher:
Release Date : 2004
The Performance Of Initial Public Offerings And The Cross Section Of Institutional Ownership written by Arik Ben Dor and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2004 with categories.
The paper examines the relation between the cross section of institutional ownership in IPOs and subsequent returns. We find that the level of institutional ownership shortly after the IPO and subsequent changes in holdings forecast future performance up to three years after the issue date. IPOs in the highest institutional ownership quintile outperform IPOs in the lowest quintile by roughly 1% a month after adjusting for risk. Controlling for market conditions, return predictability is limited to 'hot markets' characterized by high volume of IPOs and large first day returns. The performance of IPOs widely held by institutions does not reflect initial 'undervaluation' and subsequent price correction. Rather, institutional investors hold stocks with high growth expectations that experienced a strong price run-up in the past. The findings are consistent with institutional investors acting as momentum traders and enjoying high profits in periods where 'sentiment' is high.
Capital Choices
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Author : Michael E. Porter
language : en
Publisher:
Release Date : 1994-12-01
Capital Choices written by Michael E. Porter and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1994-12-01 with categories.