Are active fund managers collectors of private information or fast interpreters of public information?

Abstract

Recent studies of fund manager performance find evidence of outperformance. However limited research exists as to whether such outperformance is because of privately collected information, or merely expedient interpretation of publicly released information. In this study, we examine the trade sequences of active Australian equity fund managers around earnings announcements to provide insights into the source of fund managers' superior information. We document an increased occurrence of buy-sell trade sequences around good-news earnings announcements. The evidence is consistent with fund managers having both private information about forthcoming good-news earnings announcements and being 'short-term profiteers'. We find no evidence that fund managers have private information about forthcoming bad-news earnings announcements. However, we do find an increase in the frequency of fund managers not trading before bad-news earnings announcements only to subsequently sell during announcements. Copyright (c) 2010 The Authors. Accounting and Finance (c) 2010 AFAANZ.

Examining the Impact of STR Weekly RevPAR Announcements on Lodging Stock Returns

“…In the general business literature, Gallagher, Looi, and Pinnuck (2010) examined trade sequences of Australian fund managers to determine the source of fund managers' superior information and whether fund managers were collectors of private information or fast interpreters of public information. Their work defined "interpreters" as investors who had no private information but who processed publicly available news, finding evidence of trading patterns consistent with private information and short-term profiteering with regard to good-news but not bad-news earnings announcements.…”

Institutional trading in stock market anomalies in Australia

“…Most studies examine the performance of institutions at the individual fund level and only cover certain groups of institutions. Some studies utilise a unique database that contains trade data of equity funds and document superior performance of active equity funds (Pinnuck, 2003;Frino et al, 2006;Gallagher and Pinnuck, 2006;Gallagher et al, 2010;Foster et al, 2011). Other studies investigate mutual funds or superannuation funds separately (Bird et al, 1983;Sinclair, 1990;Sawicki and Ong, 2000;Gallagher, 2001;Holmes and Faff, 2004;Bilson et al, 2005).…”