The Identification of Differential Interpretations and its Correlation to Equity Sectors

Open Access
Soliday, Christina Bryn
Area of Honors:
Bachelor of Science
Document Type:
Thesis Supervisors:
  • J. Randall Woolridge, Thesis Supervisor
  • Brian Davis, Honors Advisor
  • trading volume
  • differential interpretations
  • equity sectors
This paper seeks to identify if institutional investors have an advantage to retail investors in the consumer equities market. It is hypothesized that such an advantage can be explained through differential interpretations of public information on behalf of different investing classes due to information processing asymmetries. While literature already exists to explain differential interpretations, this study applies this knowledge to answer the question: Are differential interpretations of public information identified through an analysis of trading volume around financial announcements more correlated to consumer facing equity sectors due to information processing asymmetries between retail and institutional investors? Trading volume and daily price change data was collected for the top ten holdings in each sector specific SPDR ETF and the analysis was restricted to earnings announcement periods to isolate information interpretation asymmetries and control for information asymmetries. The study reviewed the number of times there was significant trading volume with minimal price change alluding to the presence of differential interpretations, the magnitude of the price and volume reactions if this trading behavior was identified, and the R-squared coefficient between the two variables. After analysis, the study concluded that there is no significant relationship between differential interpretations and any equity sector.