Governance through trading: Institutional swing trades and subsequent firm performance

Authors

David R. Gallagher, University of New South Wales, Macquarie University, Capital Markets CRC LimitedFollow
Peter A. Gardner, Plato Investment Management
Peter Swan, University of New South WalesFollow

RIS ID

118623

Publication Details

Gallagher, D. R., Gardner, P. A. & Swan, P. L. (2013). Governance through trading: Institutional swing trades and subsequent firm performance. Journal of Financial and Quantitative Analysis, 48 (2), 427-458.

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. Copyright Michael G. Foster School of Business, University of Washington 2013.