The Information in Industry-Neutral Self-Financed Trades

Authors

Yashar H. Barardehi, Chapman UniversityFollow
Zhi Da, University of Notre DameFollow
Mitch Warachka, Chapman UniversityFollow

Document Type

Article

Publication Date

2-14-2023

Abstract

We identify Industry-Neutral Self-Financed Informed Trading (INSFIT) as stock trades financed by offsetting, equivalent dollar-denominated stock trades in the same industry. Approximately 37% of short-term mutual fund trading profits can be attributed to these trade pairs. Consistent with informed trading, INSFIT precedes unusually high media coverage for the underlying stocks. The trades underlying INSFIT are also larger as the release of stock-level news becomes more imminent. Both relative valuation and the hedging of industry exposure motivate INSFIT’s industry neutrality. While INSFIT positively impacts fund performance, active fund managers who execute INSFIT more aggressively obtain smaller trading profits per execution.

Comments

This article was originally published in Journal of Financial and Quantitative Analysis in 2023. https://doi.org/10.1017/S0022109023000091

Recommended Citation

Barardehi, Y., Da, Z., & Warachka, M. (2023). The information in industry-neutral self-financed trades. Journal of Financial and Quantitative Analysis. https://doi.org/10.1017/S0022109023000091

Peer Reviewed

1

Copyright

The authors

Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 License.