Using a unique database of daily transactions from Australian equity managers, we investigate the relation between institutional trading and share returns. The 34 institutional investors included in our sample exhibit a statistically and economically significant ability to predict large capitalization share returns for the ten days following their trades. Detailed analysis indicates that investment manager style is important in understanding the link between institutional trading and stock returns. The contemporaneous relation between institutional trading and returns depends on trade size, broker use, and investment style. We find growth-oriented managers are momentum traders, while style-neutral and value managers are contrarian.

Using unique daily fund-manager trade data, we examine the role of institutional trading in influencing firm performance. We show that short-horizon informed trading by multiple institutional investors effectively disciplines corporate management. Our focus is on short-term “swing” trades, sequences with three phases (e.g., buy-sell-buy). We find swing trades increase stock price informativeness, are profitable after costs, and improve market efficiency. This increase in stock price informativeness is associated with subsequent firm outperformance. Trades are most beneficial with optimal stock holdings that reflect the information acquisition incentives of investors as well as liquidity costs.

We study the informativeness of trades via discount and full-service retail brokers. We find that trades via full-service retail brokers are statistically and economically more informative than are trades via discount retail brokers. This finding holds in every year over the 12-year sample period and in various subsamples. We also find that past returns, volatility, and news announcements positively relate to the net volume of discount retail brokers, but these variables are unrelated to the net volume of full-service retail brokers. Our results suggest that broker type selection bias is an important consideration in studying individual investors’ trades.