Publication Type

Conference Paper

Publication Date

8-2004

Abstract

Using a novel and detailed custody trades dataset, this paper analyzes the trading behavior of institutions. Extant studies have examined the effects of past performance on trading by retail investors, day traders, and futures floor traders. Yet very little work has been done on institutions. We find that unlike other investors, institutions take on more risk following an increase in net profit and loss. However, the responses to a gain and loss are highly asymmetric. Institutions aggressively reduce risk in the wake of losses, but only mildly increase risk in the wake of gains. This asymmetry is more pronounced for experienced and older funds. Further, the performance dependence varies over the calendar year, and manifests itself at the security but not at the portfolio level. We relate these findings to the behavioral theories of narrow framing, dynamic loss aversion, and overconfidence.

Keywords

Institutional investors, overconfidence, loss aversion

Discipline

Corporate Finance | Finance and Financial Management | Portfolio and Security Analysis

Research Areas

Finance

Publication

European Finance Association Meeting 2004, August 18-21

First Page

1

Last Page

42

Identifier

10.2139/ssrn.559414

City or Country

Maastricht, Netherlands

Copyright Owner and License

Authors

Additional URL

https://ssrn.com/abstract=559414

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