Fundamental Analysis, Institutional Investment, and Limits to Arbitrage
研究发现短期交易型机构投资者会利用公开财报中的基本面信号进行交易，且这些信号带来的超额收益随交易成本和套利风险上升而增加，表明存在套利限制；同时机构交易有助于降低这些超额收益，促进市场效率。
Abstract: Previous research shows that fundamental signals (financial ratios) derived from publicly available financial statements can predict future abnormal stock returns. This paper examines whether institutional investors trade on these fundamental signals and the implications of institutional investors’ trading for stock valuation. We provide evidence that transient institutional investors (institutions who actively trade securities for short‐term returns) trade on fundamental signals. We also show that the abnormal returns associated with fundamental signals increase with transaction costs and arbitrage risk, indicating the existence of limits to arbitrage for this investment strategy. We further document that transient institutional investors’ trades help reduce the returns related to fundamental signals. This paper provides evidence helping to explain the abnormal returns associated with fundamental signals and contributes to our understanding of institutional investors’ role in enhancing market efficiency.