A Preliminary Test of the Presence of Window Dressing: Evidence from Institutional Stock Trading

Abstract

For years, investors and accountants have speculated that managers “window dress,” that is, undertake actions to improve their balance sheets before they issue their financial reports. Similarly, institutional money managers are said to adjust their stock portfolios before the release of their quarterly reports. In this paper, stock market volume data for the overall market and for a number of different sample portfolios are examined to see if there is abnormal end-of-period trading activity. The results suggest that trading activity increases at the end of each quarter. This result is consistent with the window dressing hypothesis.