Institutional Investors and Trading Volume Reactions to Management Forecasts of Annual Earnings

This paper examines the effect of institutional investors on the trading volume reaction to management forecasts of annual earnings. Based on a sample of forecasting firms between 1990 and 1992, institutional investors are examined as heterogeneous types, rather than as a single group as done in prior research. The findings contribute to the growing literature on institutional investor types in two ways: (1) institutional categories differ in their trading patterns, and (2) if the categories are classified into active and inactive types, then greater trading by active institution-types signals greater investor-level information asymmetries and greater trading by inactive institution-types signals lower investor-level information asymmetries. Overall, the results suggest that increased firm voluntary disclosures, as encouraged by the SEC and the AICPA, may be differentially informative to different types of investors.