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Publications
  • October 2020
  • Article
  • Journal of Financial Economics

IQ from IP: Simplifying Search in Portfolio Choice

By: Huaizhi Chen, Lauren Cohen, Umit Gurun, Dong Lou and Christopher J. Malloy
  • Format:Print
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Abstract

Using a novel database that tracks web traffic on the SEC’s EDGAR servers between 2004 and 2015, we show that mutual fund managers gather information on a very particular subset of firms and insiders, and their surveillance is very persistent over time. This tracking behavior has powerful implications for their portfolio choice and its information content. An institution that downloaded an insider-trading filing by a given firm last quarter increases its likelihood of downloading an insider-trading filing on the same firm by more than 41.3% this quarter. Moreover, the average tracked stock that an institution buys generates annualized alphas of between 9% to 18% relative to the purchase of an average non-tracked stock. We find that institutional managers tend to track members of the top management teams of firms (CEOs, CFOs, presidents, and board chairs) and tend to share educational and location-based commonalities with the specific insiders they choose to follow. Collectively, our results suggest that the information in tracked trades is important for fundamental firm value and is only revealed following the information-rich dual trading by insiders and linked institutions.

Keywords

Tracked Trades; Return Predictability; Institutional Trading; Insider Trading; Institutional Investing; Information; Investment Portfolio; Decisions; Management

Citation

Chen, Huaizhi, Lauren Cohen, Umit Gurun, Dong Lou, and Christopher J. Malloy. "IQ from IP: Simplifying Search in Portfolio Choice." Journal of Financial Economics 138, no. 1 (October 2020): 118–137. (Winner of the First Prize, Crowell Memorial Award for Best Paper in Quantitative Investments, PanAgora Asset Management, 2019.)
  • SSRN
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About The Author

Lauren H. Cohen

Finance
→More Publications

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More from the Authors
  • Rawbank's Illico Cash: Can 'Fast Money' Overcome Cash Dependency in the DRC? By: Lauren Cohen and Grace Headinger
  • From GOP to NFT: Anthony Scaramucci and the Launch of Flatter NFT By: Lauren Cohen, Richard Ryffel and Grace Headinger
  • Reclaiming the Land of Purple: Purpl’s Mission to Unlock Finance in Lebanon By: Lauren Cohen and Grace Headinger
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