Using a matched sample of separately managed accounts (SMAs) and mutual funds (MFs) with the same portfolio manager and investment style, we find that concurrently managed MFs consistently underperform their SMAs counterparts. Fund characteristics and liquidity betas fail to fully explain the underperformance. An event-study analysis finds that the weights placed into top (bottom)-performing stocks increase for existing SMAs (MFs) and negative return gaps increase for the MFs after the onset of concurrent management. We find that higher compensation collected by SMA fund managers are associated with more unseen managerial actions which positively contribute to the SMA return gap.
We show that the quality of information sharing networks linking firms’ institutional investors has stock return predictability implications. We find that firms with high shareholder coordination experience less local comovement and less post earnings announcement drift, consistent with the notion that information sharing networks facilitate information diffusion and improve stock price efficiency. In support of the view that coordination acts as an information diffusion channel, we document that the stock return performance of firms with high shareholder coordination leads that of firms with low shareholder coordination.
Recent studies claim that mutual fund managers demonstrate strong MARKET liquidity timing skills. We extend their liquidity timing tests to the four-factor case and investigate liquidity timing skills with respect to the MARKET, SIZE, VALUE and MOMENTUM factors. Contrary to these claims, we find no evidence that fund managers adjust market exposure in anticipation of market liquidity changes. We find rather strong evidence that fund managers successfully overweight small stocks as market liquidity increases. Our study also demonstrates that it is easy to misidentify SIZE liquidity timing as MARKET liquidity timing in models that focus only on MARKET liquidity timing.
One of the most distinct trends in capital markets over the past two decades has been the rise in the equity ownership of passive financial institutions. We propose that this rise has had a negative effect in price informativeness. By not trading around firm-specific news, passive investors reduce the firm-specific component of total volatility and increase stock correlations. Consistent with this hypothesis, we find that the growth in passive institutional ownership is robustly associated with the growth in market model R2s of individual stocks since the early 1990s. Additionally, we find a negative relation between passive ownership and earnings predictability, an informativeness proxy.
We examine the influence of investor conferences on firms’ stock liquidity. We find that firms participating in conferences experience a 1.4% to 2.8% increase in stock liquidity compared to non-conference firms. Consistent with investor conferences improving firm visibility, the increase in liquidity is larger for firms with low pre-conference visibility and varies predictably with conference characteristics that affect the ability of investors to revise their beliefs about the firm. However, for firms with a large investor base and high visibility, conference participation is associated with a decline in stock liquidity, consistent with investor conferences exacerbating the information asymmetry among investors.
We compare intraday impacts of Federal Reserve decision announcements and Minutes releases between 2004 and 2015 on 1,997 equity return and volatility series. We find that returns are unresponsive to either news release, but conditional volatility increases for both, manifesting immediately after each information release, and persisting for 30 Minutes post-announcement. These effects are larger for decisions than for Minutes releases. Upon stratifying firms by trading intensity, we find most “high trading intensity” firms respond to these announcements, while “low trading intensity” firms are less affected. Our results show that traders respond, albeit differently, to both sets of information releases.
We produce convincing new evidence the turn of the year (TOY), turn of the month (TOM), and January effects are critically dependent on the sample period over which they are estimated. The TOY effect is significant in the value-weight portfolio from 1962 to 1997. It becomes insignificant in the medium-size portfolio after 1994 and in the equal-weight and low-size portfolios after 1997. The TOM effect becomes insignificant in the value-weight and high-size portfolios after 1978, in the equal-weight and medium-size portfolios after 1997, and in the low-size portfolio after 1998. January effects are significant in some sub-periods but not others.