A Tale of Two Investors: Exploring Differences in Trading Behavior around Macroeconomic Announcements : A study of institutional and retail investors in the US market

Abstract

We study whether the trading behaviour of institutional and retail investors differs on the days surrounding key macroeconomic announcements, and the impact of this difference on equity premiums earned. Through analysis of trading data from the 50 largest US companies between January 2017 and October 2022, we find a significant difference of 2.11 pp in order imbalances two days prior to announcements. Further, we find a significant difference of 2.06 pp in the equity premiums earned by institutions and retail investors on the day after announcements. We attribute these differences to the higher risk appetite of institutional investors and the slower reaction times and higher attention-sensitivity of retail investors.