Publication Type
Working Paper
Version
publishedVersion
Publication Date
11-2003
Abstract
There is ample evidence that past performance affects the trading decisions of individual investors. This paper looks at this issue using a detailed database of currency trading decisions of institutional investors. Past performance manifestly affects currency risk-taking in this group, but the sign and magnitude of the effect runs counter to much of the existing theory and evidence. There is no evidence whatsoever of disposition effects; rather, the dominant characteristic is aggressive risk reduction in the wake of losses. This effect is more prominent later in the year, and among older and more experienced funds. A modified version of the loss aversion model of Barberis, Huang and Santos (2001) offers the best hope of adequately accounting for the observed behavior.
Keywords
institutional investors, past performance, loss aversion
Discipline
Finance and Financial Management | Portfolio and Security Analysis
Research Areas
Finance
First Page
1
Last Page
40
Identifier
10.2139/ssrn.457741
Citation
TEO, Melvyn and O'CONNELL, Paul G. J..
Prospect theory and institutional investors. (2003). 1-40.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/5231
Copyright Owner and License
Authors
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/10.2139/ssrn.457741