Avoiding Volatility: Institutional Trading Before Scheduled News
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SpeakersFrancesco Franzoni (USI Lugano, Switzerland)
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FieldFinance
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Date and time
September 30, 2021
13:00 - 14:30
This seminar is part of the CIFRA UvA Finance Seminars series of Amsterdam Business School, University of Amsterdam. More information about location, title and abstract will be published in due course.
Abstract
The paper studies institutional trading ahead of scheduled
information releases, notably earnings announcements. While scheduled
news are known to be preceded by sizeable stock returns, we find that
institutional investors on average forego part of these premia as they
decrease their exposure to the stocks involved in these events. This
behavior appears to be motivated by the avoidance of stock-level
volatility and extreme downside risk. Although the effect of a single
stock holding on fund performance is small, we identify a new friction
that motivates institutional behavior. Specifically, strongly negative
earnings announcement returns for a single portfolio holding lead to
substantially larger outflows. Reducing the exposure to the stock before
the announcement mitigates these outflows.
*Co-authored with M. Di Maggio (Harvard Business School), S. Kogan (IDC Herzliya) and R. Xing (Aarhus University)
This seminar will be organised via Zoom. If you are interested in joining this seminar, please send an email to the secretariat of the Finance Group.