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Governance through Trading: Institutional Swing Trades and Subsequent Firm Performance

Published online by Cambridge University Press:  16 May 2013

David R. Gallagher ,
Peter A. Gardner  and
Peter L. Swan
David R. Gallagher
Affiliation:
david.gallagher@cifr.edu.au, Centre for International Finance and Regulation, University of New South Wales, Sydney NSW 2502, Australia, Macquarie Graduate School of Management, Macquarie University, and Capital Markets CRC Limited
Peter A. Gardner
Affiliation:
peter.gardner@plato.com.au, Plato Investment Management Limited, 60 Margaret St, Sydney 2000, Australia
Peter L. Swan
Affiliation:
peter.swan@unsw.edu.au, Australian School of Business, University of New South Wales, Sydney NSW 2052, Australia.
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Abstract

Using unique daily fund-manager trade data, we examine the role of institutional trading in influencing firm performance. We show that short-horizon informed trading by multiple institutional investors effectively disciplines corporate management. Our focus is on short-term “swing” trades, sequences with three phases (e.g., buy-sell-buy). We find swing trades increase stock price informativeness, are profitable after costs, and improve market efficiency. This increase in stock price informativeness is associated with subsequent firm outperformance. Trades are most beneficial with optimal stock holdings that reflect the information acquisition incentives of investors as well as liquidity costs.

Information

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 48 , Issue 2 , April 2013 , pp. 427 - 458
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2013 

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