Institutional Trading and Share Returns*

Using a unique database of daily transactions from Australian equity managers, we investigate the relation between institutional trading and share returns. Our sample of institutional investors exhibit statistically and economically significant predictive power in forecasting future stock returns over the ten days following their trades. Detailed analysis indicates that manager style is important in understanding the link between institutional trading and stock returns. We find growth-oriented managers are momentum traders, while style-neutral and value managers are contrarian. Further, the contemporaneous relation between institutional trading and returns depends on trade size, broker use, and investment style; trades and returns are inversely related for value/contrarian managers and directly related for style-neutral and growth managers. JEL classification: G2