Institutional Investment Constraints and Stock Prices

Jie Cao, Bing Han, Qinghai Wang

Research output: Journal article publicationJournal articleAcademic researchpeer-review

17 Citations (Scopus)

Abstract

We test the hypothesis that investment constraints in delegated portfolio management may distort demand for stocks, leading to price underreaction to news and stock return predictability. We find that institutions tend not to buy more of a stock with good news that they already overweight; they are reluctant to sell a stock with bad news that they already underweight. Stocks with good news overweighted by institutions subsequently significantly outperform stocks with bad news underweighted by institutions. The impact of institutional investment constraints sheds new light on asset pricing anomalies such as stock price momentum and post-earnings announcement drift.

Original languageEnglish
Pages (from-to)465-489
Number of pages25
JournalJournal of Financial and Quantitative Analysis
Volume52
Issue number2
DOIs
Publication statusPublished - 1 Apr 2017
Externally publishedYes

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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