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This dissertation investigates the behavior of investor classes and their effect on returns, liquidity, and informational efficiency around momentum-related asset pricing anomalies. Chapter 1 explores the role of household and institutional investor net buying in amplifying and suppressing the returns to momentum-related anomalies. Using trade level data from the NASDAQ OMXH (Finland), trades made by households and institutional investors are identified. Using this data, we show that households slow the integration of positive information into stock prices, resulting in an increase in long run non-mean reverting momentum. Winner stocks heavily purchased by households in the momentum formation period subsequently outperform winner stocks heavily purchased by institutions during the formation period. The enhanced momentum re-turns appear to be driven by the tendency of households to insufficiently incorporate news into prices. On the other hand, institutional buying ap-pears to drive prices closer to their fundamental value. Chapter 2 investigates the cause of volume spikes and post-event returns observed at the 52 week high (George and Hwang, 2004; Huddart et al., 2009). We argue that these effects are driven by the anchoring of individual investors to the 52 week high price, which drives disposition effect related sales. Our findings indicate that households submit uninformed limit orders to sell at and around the 52 week high price. This effect is magnified with stock- and market-level volatility and for those stocks where the 52 week high has not been recently breached; in both of these cases, anchoring is likely to be heightened. This anchoring behavior provides liquidity, which institutional investors appear to capitalize upon. Chapter 3 explores the effect of individual investor anchoring at the 52-week high on stock liquidity and informational efficiency. Using intra-day trade and quote data, we find that liquidity increases as the 52 week high approaches, peaking on the 52 week high day. Uninformed liquidity provision, as measured by a reduction in bid-ask spreads and increased depth in the limit order book, weakens informational efficiency/price impact for stocks at the 52 week high. The reduction in price impact cements the idea that momentum and 52 week high returns are driven by the dampening of price discovery by households in winner stocks (Hong and Stein, 1999). |
