Publication Type
Journal Article
Version
acceptedVersion
Publication Date
2-2009
Abstract
Using a proprietary database of currency trades, this paper explores the effects of trading gains and losses on risk-taking among large institutional investors. We find that institutional investors, unlike individuals, are not prone to the disposition effect. Instead, institutions aggressively reduce risk following losses and mildly increase risk following gains. This asymmetry is more pronounced later in the calendar year and among older and more experienced funds. We show that such performance dependence is consistent with dynamic loss aversion (Barberis, Huang, and Santos (2001)) and overconfidence. In addition, prior institutional gains and losses have palpable implications for future prices.
Discipline
Finance and Financial Management | Portfolio and Security Analysis
Research Areas
Finance
Publication
Journal of Financial and Quantitative Analysis
Volume
44
Issue
1
First Page
155
Last Page
188
ISSN
0022-1090
Identifier
10.1017/S0022109009090048
Publisher
Cambridge University Press
Citation
O'Connell, Paul G. J. and TEO, Melvyn.
Institutional Investors, Past Performance, and Dynamic Loss Aversion. (2009). Journal of Financial and Quantitative Analysis. 44, (1), 155-188.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/2658
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1017/S0022109009090048