Research On The Trading Strategy And Earnings Forecast Of Institutional Investors In Short Short Term

With the growth of China’s institutional investors in recent years, the relationship between the trading behavior of institutional investors and stock returns has aroused general interest in academic field. Most of the existing empirical studies didn’t research directly on the institution’s trading behavior, but mainly used the stake changes as the proxy for institution’s trading behavior, which is different from the empirical study of this article. This article employs large-volume trading data and stock daily trading data from2011to2012as the sample data. Based on the methodology first proposed by Kaniel, Saar, Titman (2008), this article establishes an indicator, which is Net Institute Trading (NIT), to directly measure the institution’s trading behavior for the first time in China. By focusing on the intense trading deciles, the article explores the relationship between institution’s trading behavior and stocks’ return in the ultra-short term. In addition, this article also relates the strategic trade model to provide theoretical support for the empirical study.The first conclusion of this article is that institutional investors tend to adopt momentum strategy in the ultra-short term. The second conclusion is that the trading behavior of institutional investors can predict future return, and this predictability is not subsumed by other factors. There are three steps to reach the above conclusion. First, this article assumes that institution’s trading behavior, stock’s past performance and volume all has predictability, so it verifies each factor respectively. Second, the article uses the two-dimensional combination to study the trading behavior’s return predictability when controlling for stock’s past performance and volume respectively. Third, the article employs a multi-factor linear regression to study the return predictability of institution’s trading behavior, in which case all other factors are controlled.This article finds that if institutional investors have intense selling behavior when the stock price is going down, then a further declining price can be expected afterwards, vice versa. Therefore, for those individual investors who lack informational advantage, they can adopt this finding to assist their investment.