Are Trade Size-Based Inferences About Traders Reliable? Evidence from Institutional Earnings-Related Trading


  • Accepted by Douglas Skinner. We gratefully acknowledge valuable comments from Ashiq Ali, Daniel Cohen, and seminar participants at the University of Texas at Dallas, the NYU summer research conference, Florida International University, Seoul National University, and Sungkyunkwan University. An Online Appendix to this paper can be downloaded at


The use of observed transaction sizes to differentiate between “small” and “large” investor trading patterns is widespread. A significant concern in such studies is spurious effects attributable to misclassification of transactions, particularly those originating from large investors. Such effects can arise unintentionally, strategically, or endogenously. We examine comprehensive records of a sample of institutional investors (i.e., “large” traders), including their order sizes and overall position changes, to assess the degree to which such misclassifications give rise to spurious inferences about “small” and “large” investor trading activities. Our analysis shows that these institutions are heavily involved in small transaction activity. It also shows that they increase their order sizes substantially in announcement periods relative to nonannouncement periods, presumably as an endogenous response to earnings news. In the immediate earnings announcement period, transaction size-based inferences about directional trading are quite misleading—producing spurious “small trader” effects and, more surprisingly, erroneous inferences about “large trader” activity.