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The Interim Trading Skills of Institutional Investors

Authors


  • Andy Puckett is at the University of Tennessee. Xuemin (Sterling) Yan is at the Trulaske College of Business, University of Missouri. We would like to thank Judy Maiorca, Allison Keane, and ANcerno Ltd. (formerly the Abel Noser Corporation) for providing institutional trading data. We would also like to thank Cam Harvey (the Editor), an anonymous associate editor, an anonymous referee, Paul Brockman, Dan French, Bill Moser, Chunchi Wu, Lu Zheng (AFA discussant), Jonathan Berk, Russ Wermers, Harold Black, Larry Fauver, Phillip Daves, Mike Ehrhardt, and seminar participants at the 2009 American Finance Association Conference, the University of Tennessee, the University of Missouri, and the National Chiao Tung University of Taiwan for helpful comments. We acknowledge financial support from the University of Missouri Research Board.

ABSTRACT

Using a large proprietary database of institutional trades, this paper examines the interim (intraquarter) trading skills of institutional investors. We find strong evidence that institutional investors earn significant abnormal returns on their trades within the trading quarter and that interim trading performance is persistent. After transactions costs, our estimates suggest that interim trading skills contribute between 20 and 26 basis points per year to the average fund's abnormal performance. Our findings also indicate that any trading skills documented by previous studies that use quarterly data are biased downwards because of their inability to account for interim trades.

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