I document a strong cross-predictability of stock returns driven by institutional investors' private information about firms' fundamental relations. A value-weighted arbitrage portfolio yields a monthly alpha of 1.65%. The magnitude of predicted returns increases with firm size, number of institutional shareholders, and institutional trading intensity while not changing with analyst coverage. Further evidences confirm that institutional investors strategically trade a stock in response to shocks to its peers, which subsequently causes permanent price movements. Overall, my results suggest that institutional trading propagates the diffusion of value-relevant information across firms but only gradually due to information asymmetries among investors. 

Keywords: cross-predictability, informed trading, information asymmetry, institutional investors, common ownership
JEL Classification: G12, G14, G23​