Abnormal Institutional Ownership and Expected Returns

I analyze 2,287,907 firm-month observations over 1984–2022 and show that public regulatory 13F filings of institutional ownership contain exploitable information about expected returns even after they have been disclosed to outsiders with a 45-day delay. Using a characteristic-based model, I decompose institutional ownership into abnormal and expected components and find that portfolios of firms with the highest abnormal institutional ownership outperform portfolios of firms with the lowest abnormal institutional ownership by 76 basis points over the following month. I also find that abnormal institutional ownership predicts improvements in firms’ fundamental performance and can be combined with a strategy based on abnormal analyst coverage to produce excess returns. The findings suggest that efficient analysis of public regulatory disclosure can contain potential exploitable information about a firm’s future fundamental performance and expected returns.