SEC Form 13F-HR: Statistical investigation of trading imbalances and profitability analysis

TL;DR

This paper investigates how trading imbalances derived from SEC Form 13F-HR filings can be exploited for profit, revealing that contrarian strategies over 1-2 months post-quarter can be highly profitable.

Contribution

It introduces a statistical analysis of holdings variations and demonstrates a profitable contrarian trading strategy based on market imbalances.

Findings

Contrarian trades based on imbalances yield significant profits.

Optimal profit window is between 21 and 42 trading days after quarter end.

Market imbalances reflect information already absorbed, enabling profitable contrarian bets.

Abstract

US Institutions with more than $100 million assets under management must disclose part of their long positions into the SEC Form 13F-HR on a quarterly basis. We consider the number of variations in holdings between consecutive reporting periods, and compute imbalances in buying versus selling behaviour for the assets under consideration. A significant opportunity for profit arises if an external investor is willing to trade contrarian to the 13F filings imbalances. Indeed, imbalances capture the amount of information already consumed in the market and the related trades tend to be inflated by crowding and herding. Betting on a relatively short-term movement of prices against the sign of imbalances results in a profitable strategy especially when using a time horizon between 21 and 42 trading days (corresponding to 1-2 calendar months) after each financial quarter ends.