Momentum Trading by Institutions

Momentum Trading by Institutions
Author(s): Wahal, Sunil and Badrinath, S. G.
Year: 2001
Paper Number: GBS-FIN-2001-002
Goizueta Department: Finance

Abstract

We document the equity trading practices of approximately 1,200 institutions from the third quarter of 1987 through the third quarter of 1995. We decompose trading by institutions into the initiation of new positions (entry), the termination of previous positions (exit), and adjustments to ongoing holdings. Institutions act as momentum traders when they enter into stocks but as contrarian traders when they exit or make adjustments to ongoing holdings. We find significant differences in trading practices among different types of institutions.