Momentum Trading by Institutions


  • S.G. Badrinath,

  • Sunil Wahal

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    • Badrinath is with the College of Business Administration, San Diego State University. Wahal is with the Goizueta Business School, Emory University. Portions of this research were completed while the first author was at Rutgers University. Mehmet Ozbilgin and Vassil Mihov provided helpful research assistance. Doug McIntyre and Ron Harris provided excellent computational assistance. We thank an anonymous referee, Hank Bessembinder, Jeff Busse, Jennifer Conrad, Richard Green, Paul Irvine, Steve Jones, Bing Liang, Laura Starks (the AFA discussant), Russ Wermers, Marc Zenner, and seminar participants at SMU, the University of Kansas, the University of Western Ontario, the American Finance Association meetings in Boston, the EFMA meetings in Barcelona, and the SFA meetings in Florida for valuable comments. We also thank Stephen Packs of the Office of Legal Disclosure, Securities and Exchange Commission, for assistance in interpreting 13–F rulings.


We document the equity trading practices of approximately 1,200 institutions from the third quarter of 1987 through the third quarter of 1995. We decompose trading by institutions into the initiation of new positions (entry), the termination of previous positions (exit), and adjustments to ongoing holdings. Institutions act as momentum traders when they enter stocks but as contrarian traders when they exit or make adjustments to ongoing holdings. We find significant differences in trading practices among different types of institutions.