Finance Seminar: Jianfeng Hu, Singapore Management University

Title: Informed Trading under the Microscope: Evidence from 30 Years of Daily Hedge Fund Trades

Info about event

Time

Thursday 7 November 2024,  at 12:45 - 13:45

Location

Fuglesangs Allé 4, 8210 Aarhus V, Building 2632(L), Room 242

Organizer

Christoph Merkle

Presenter: Jianfeng Hu, Singapore Management University

Title: Informed Trading under the Microscope: Evidence from 30 Years of Daily Hedge Fund Trades

Abstract: We estimate daily aggregate hedge fund (HF) order flow of individual stocks over thirty years, from 1993 to 2022, using publicly available data. Hedge fund order flow positively predicts future stock returns in the cross-section without subsequent reversals, and this predictability is stronger in stocks with weak informational environments and high arbitrage costs. We do not find similar predictive power for the order flow of non-HF institutional investors. In addition, we find that hedge fund order flow significantly predicts abnormal returns around various corporate events and public news arrivals. Furthermore, hedge funds are increasingly utilizing alternative data, such as satellite images, to generate informed trading signals. Finally, hedge fund trading reduces variance ratios of stock returns and mitigates price response to earnings announcements, highlighting their critical role in enhancing price efficiency. 

Host: Thomas Kokholm