Follow the leader: Fund managers trading in signal-strength sequence

Fong, K; Gallagher, DR; Gardner, P; Swan, PL

Follow the leader: Fund managers trading in signal-strength sequence

Fong, K Gallagher, DR Gardner, P Swan, PL

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Publisher:: Blackwell Publishing
Publication Type:: Journal Article
Citation:: Accounting & Finance, 2011, 51 (3), pp. 684 - 710
Issue Date:: 2011-01

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Field	Value	Language
dc.contributor.author	Fong, K	en_US
dc.contributor.author	Gallagher, DR	en_US
dc.contributor.author	Gardner, P	en_US
dc.contributor.author	Swan, PL	en_US
dc.date.issued	2011-01	en_US
dc.identifier.citation	Accounting & Finance, 2011, 51 (3), pp. 684 - 710	en_US
dc.identifier.issn	0810-5391	en_US
dc.identifier.uri	http://hdl.handle.net/10453/15888
dc.description.abstract	When fund managers trade sequentially in the same direction, the information confirmation hypothesis predicts the long-term profitability of the leader trade to be increasing in the number of subsequent trades. The information cascade hypothesis predicts a non-positive relationship. Using active equity fundsï½ daily trading data, we document a transition from information confirmation to information cascades as the number of followers increase. We find that highly disguised multiple-broker packages exhibit higher market impact, higher long-term returns and are associated with fewer followers. Our study also documents that lead fund managers face portfolio risk constraints in trading on private information.	en_US
dc.publisher	Blackwell Publishing	en_US
dc.relation	http://purl.org/au-research/grants/arc/DP0665826
dc.relation.ispartof	Accounting & Finance	en_US
dc.relation.isbasedon	10.1111/j.1467-629X.2010.00367.x	en_US
dc.subject.classification	Accounting	en_US
dc.title	Follow the leader: Fund managers trading in signal-strength sequence	en_US
dc.type	Journal Article
utslib.citation.volume	3	en_US
utslib.citation.volume	51	en_US
utslib.for	1502 Banking, Finance and Investment	en_US
utslib.for	1501 Accounting, Auditing and Accountability	en_US
utslib.for	1402 Applied Economics	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
utslib.copyright.status	closed_access
pubs.consider-herdc	true	en_US
pubs.issue	3	en_US
pubs.volume	51	en_US

Abstract:

When fund managers trade sequentially in the same direction, the information confirmation hypothesis predicts the long-term profitability of the leader trade to be increasing in the number of subsequent trades. The information cascade hypothesis predicts a non-positive relationship. Using active equity fundsï½ daily trading data, we document a transition from information confirmation to information cascades as the number of followers increase. We find that highly disguised multiple-broker packages exhibit higher market impact, higher long-term returns and are associated with fewer followers. Our study also documents that lead fund managers face portfolio risk constraints in trading on private information.

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10453/15888