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Deviations from Norms and Informed Trading

Published online by Cambridge University Press:  08 September 2014

Alok Kumar  and
Jeremy K. Page
Alok Kumar
Affiliation:
[email protected], School of Business Administration, University of Miami, PO Box 248027, Coral Gables, FL 33124
Jeremy K. Page
Affiliation:
[email protected], Marriott School of Management, Brigham Young University, 685 TNRB, Provo, UT 84602.
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Abstract

Investment managers are subject to personal and institutional norms that can constrain their investment choices. We conjecture that norm-constrained investors deviate from such norms only when they have compelling information, and we predict that deviating investments earn relatively high abnormal returns ex post. Consistent with our conjecture, we find that institutions averse to holding lottery-like stocks or sin stocks earn relatively high abnormal returns when they choose to hold such stocks. We find similar but weaker results for deviations from broader style categories. Overall, our evidence indicates that deviations from established institutional or social norms signal informed investing.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 49 , Issue 4 , August 2014 , pp. 1005 - 1037
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2014 

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