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 funds' 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.
| Original language | English |
|---|---|
| Pages (from-to) | 684-710 |
| Number of pages | 27 |
| Journal | Accounting and Finance |
| Volume | 51 |
| Issue number | 3 |
| DOIs | |
| Publication status | Published - Sept 2011 |
| Externally published | Yes |