We examine short-horizon return predictability using a novel proprietary dataset of institutional traders with known identities. We estimate investor-specific short-term trading skill and find that there is pronounced heterogeneity in predicting short-term returns among institutional investors. Incorporating short-term predictive ability, our model explains much higher fraction of variation in asset returns. Ignoring the heterogeneity in short-term trading skill has major implications in modeling price impact. We analyze the differences between trading characteristics of skilled and unskilled investors. A simple trading strategy exploiting our skill estimates yields statistically significant abnormal returns supporting the skill-based interpretation.

Ciamac Moallemi, Mehmet Saglam, and Michael Sotiropoulos
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Moallemi, Ciamac, Mehmet Saglam, and Michael Sotiropoulos
. Short-term trading skill: An analysis of investor heterogeneity and execution quality. September 01, 2016.