Conclusion OF TAPE ON NET VOLUME

4. Conclusion
This paper has presented a technique for predicting quarterly institutional ownership using
the “tape”, the publicly available record of all trades and quotes within the quarter. The
technique can be used to track high-frequency institutional trading in a large cross-section of
stocks. In future research we plan to use this approach to measure patterns of institutional
behavior around earnings announcements, stock splits, and other corporate actions.
The results of this paper shed light on the trading behavior of institutions. Total
classifiable buy volume predicts increasing institutional ownership and total sell volume predicts decreasing institutional ownership. That is, institutions tend to buy at the ask and sell at the bid, or buy on upticks and sell on downticks, suggesting that they demand liquidity rather than provide it. The coefficient on total sell volume is larger in absolute value than the coefficient on total buy volume, suggesting that institutions are particularly likely to demand liquidity when they sell. All these patterns are more pronounced in large stocks than in small stocks.

Classifying transactions by their size adds considerable explanatory power to our regressions. Buy volume in sizes between $2,000 and $30,000 is associated with decreasing
institutional ownership, while buy volume in larger sizes predicts increasing institutional ownership. Interestingly, extremely small buys below $2,000 also predict increasing institutional ownership, suggesting that institutions use these trades to conceal their activity or to round small positions up or down. All these patterns are reversed for sell volume, and are remarkably consistent across firm sizes.