Valuation Uncertainty, Market Sentiment and the Informativeness of Institutional Trades

56 Pages Posted: 18 Aug 2016

See all articles by Lisa Yang

Lisa Yang

Montana State University - Bozeman

Jeremy Goh

Singapore Management University - Lee Kong Chian School of Business

Chiraphol Chiyachatana

Singapore Management University - Lee Kong Chian School of Business

Date Written: August 1, 2016

Abstract

Prior studies indicate that institutional investors are informed, in the sense that their trades predict price changes. In this study we show that return predictive ability of institutions arises (after controlling for size, book-to-market, and momentum) mainly from institutional sales of hard-to-value stocks during periods of positive market sentiment. These results support the notion that these stocks tend to be overvalued during periods of bullish market sentiment, and institutions contribute to market efficiency by identifying and trading on these overpriced stocks.

Keywords: Valuation Uncertainty, Market Sentiment, Institutional Trading

JEL Classification: G12, G14, G20

Suggested Citation

Yang, Lisa and Goh, Jeremy and Chiyachatana, Chiraphol, Valuation Uncertainty, Market Sentiment and the Informativeness of Institutional Trades (August 1, 2016). Journal of Banking and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2825547

Lisa Yang

Montana State University - Bozeman ( email )

Bozeman, MT 59717-2920
United States

Jeremy Goh (Contact Author)

Singapore Management University - Lee Kong Chian School of Business ( email )

469 Bukit Timah Road
Singapore 912409
Singapore

Chiraphol Chiyachatana

Singapore Management University - Lee Kong Chian School of Business ( email )

469 Bukit Timah Road
Singapore 912409
Singapore

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