Avoiding Volatility: Institutional Trading Before Scheduled News

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.