Abstract
This paper investigates whether institutional trades over longer horizons push the prices of industries away from fundamental values and whether investors can profitably trade on forecasted institutional trades into or out of industries. I find a negative relation between institutional trades over longer horizons and industry returns and that investors can profitably trade on forecasted institutional trades into industries. A low-high strategy that trades on prior institutional trades into industries earns an annualized Fama and French alpha of 16.62%, while a strategy that trades on forecasted institutional trades into an industry earns an annualized Fama and French alpha of 23.87%. After additionally controlling for stock-level and industry level price momentum, these two strategies earn annualized five-factor alphas of 12.95% and 19.42%.
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