Who Blinks in Volatile Markets, Individuals or Institutions?

Dennis, Patrick J.; Strickland, Dorothy

doi:10.2139/ssrn.227715

Cited by 101 publications

(129 citation statements)

References 20 publications

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“…These combined results suggest that while short sellers are typically contrarian, some short sellers appear to trade in the direction the market moves indicating that short sellers become less sophisticated on these event days (Dennis and Strickland, 2002). Christophe, Ferri, and Angel (2004) show that pre-earnings announcement short selling relates inversely with post-earnings announcement returns and argue that short sellers are able to anticipate negative news events, such as unfavorable earnings announcements.…”

Section: Discussionmentioning

confidence: 93%

“…These results indicate that following the crowd on days with extreme market movements is less profitable than remaining contrarian on these days. Dennis and Strickland (2002) argue that institutional investors, who are generally considered informed traders, tend to blink in volatile markets by trading in the direction that markets move. The case of short sellers is particularly appealing because short sellers are shown to be contrarian in contemporaneous returns.…”

Section: Iiic Return Predictability Of Short Sales In Volatile Marketsmentioning

confidence: 99%

“…While empirical evidence supports the idea that institutional investors are informed and improve price efficiency, some studies show that institutions engage in less sophisticated behavior, such as positive feedback trading and herding (Nofsinger and Sias, 1999;and Sias, 2004). Dennis and Strickland (2002), document that institutional investors generally trade in the direction that markets move on days with extreme market movements and suggest that institutions tend to "blink in volatile markets".…”

Section: Introductionmentioning

confidence: 99%

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Short Selling during Extreme Market Movements

Blau

Ness

et al. 2010

JOT

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This study examines short selling of NYSE stocks contained in the S&P 500 on days with extreme increases (up days) and extreme decreases (down days) in the index. While Diether, Lee, and Werner (2009) show that short sellers are generally contrarian in contemporaneous returns, we find that short selling increases on large down days and decreases on large up days suggesting that during extreme market movements, short sellers tend to follow the crowd. Further, our results indicate that short sellers do not anticipate down days indicating that these event days are largely unforeseen. When examining the return predictability of short sellers on event days, we observe that short sellers on up days are significantly better at predicting negative next-day returns than short sellers on down days indicating that contrarian short selling is more profitable than momentum short selling.

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Section: Discussionmentioning

confidence: 93%

Section: Iiic Return Predictability Of Short Sales In Volatile Marketsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Short Selling during Extreme Market Movements

Blau

Ness

et al. 2010

JOT

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“…Previous studies use various definitions for extreme events, such as a price drop of 10 per cent, a weekly price change of more than 50 per cent, the largest stock price change in a 300-day window and so on (see, among others, Atkins and Dyl, 1990;Bremer and Sweeney, 1991;Dennis and Strickland, 2002). We use the following definition: a price shock for a given stock occurs on a day where the stock return is above (positive shock) or below (negative shock) three standard deviations the average daily stock return computed over the (−60 to −11) days before the given day.…”

Section: Data and Testing Methodologymentioning

confidence: 99%

Trading in option contracts before large price changes: A comparative study of US and UK markets

Galariotis¹,

Wu²,

Spyrou

2014

J Deriv Hedge Funds

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Previous studies indicate that traders in possession of important information are more likely to transact in option contracts rather than the underlying asset. This article examines stock option trading volume before significant price changes in the underlying stock for all S&P100 and FTSE 100 constituent stocks. Our findings indicate irregular option trading volume before a significant amount of large price changes. This effect is less pronounced in the UK market.

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“…Their functioning is strictly regulated, furthermore, the legal investment limits induce similar behaviour on the part of the fund managers. This homogeneity enables us to overcome an issue noted by Hotchkiss and Strickland (2003) and Dennis and Strickland (2002), who find that different types of institutions have different characteristics, which in turn dictate their trading behaviour and thus their impact on market.…”

Section: Introductionmentioning

confidence: 99%

Institutional investors and the information content of earnings announcements: the case of Poland

Korczak

Tavakkol

2004

Economic Systems

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract: This paper investigates the relationship between market reaction to earnings surprises and institutional concentration in the firm's shareholders base. We use data from the Polish stock market where pension funds form a homogenous and highly competitive investor class with an increasing share in the market capitalisation and trading volume. We find evidence that higher pension funds holdings in a company tend to reduce the magnitude of market reaction around public disclosures. We interpret these findings as an information advantage that funds have over individual investors, which may result from scale economies in gathering and processing public information, as well as from access to privileged information in the interim period. We also find that company mangers are selective as to the type of information they provide to the market prior to their scheduled disclosures. Terms of use: Documents in EconStor mayJEL Classification: G14, G23, M41

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Who Blinks in Volatile Markets, Individuals or Institutions?

Cited by 101 publications

References 20 publications

Short Selling during Extreme Market Movements

Short Selling during Extreme Market Movements

Trading in option contracts before large price changes: A comparative study of US and UK markets

Institutional investors and the information content of earnings announcements: the case of Poland

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