HCBE Faculty Articles

Title

Who Reacts to News?

Document Type

Article

Date

2019

Publication Title

Quarterly Journal of Finance

ISSN or ISBN

2010-1406

Volume

9

Issue

1

Description

We show that the positive relation between firm-level cash-flow news and institutional ownership documented by [Cohen et al., Journal of Financial Economics 66, 409–462.] is mostly driven by short-horizon investors. Short-term institutions trade to incorporate cash-flow related information into prices and potentially reduce under-reaction to cash-flow news. In contrast, long-term institutions are more sensitive to discount-rate news, consistent with the idea that their strategy is to realize the long-term expected returns and that they care more about changes in their opportunity set. Our results support the premise that short- and long-horizon institutions are potentially trading with each other based on their opposing preferences for news.

DOI

10.1142/S2010139219400020

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