Selling Fast and Buying Slow: Heuristics and Trading Performance of Institutional Investors

Are market experts prone to heuristics, and if so, do they transfer across closely related domains—buying and selling? We investigate this question using a unique dataset of institutional investors with portfolios averaging $573 million. A striking finding emerges: while there is clear evidence of s...

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Bibliographic Details
Published inNBER Working Paper Series
Main Authors Klakow Akepanidtaworn, Rick Di Mascio, Imas, Alex, Schmidt, Lawrence
Format Paper
LanguageEnglish
Published Cambridge National Bureau of Economic Research, Inc 01.07.2021
Subjects
Asset acquisitions
Decision making
Economic theory
Heuristic
Institutional investments
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Summary:Are market experts prone to heuristics, and if so, do they transfer across closely related domains—buying and selling? We investigate this question using a unique dataset of institutional investors with portfolios averaging $573 million. A striking finding emerges: while there is clear evidence of skill in buying, selling decisions underperform substantially—even relative to random selling strategies. This holds despite the similarity between the two decisions in frequency, substance and consequences for performance. Evidence suggests that an asymmetric allocation of cognitive resources such as attention can explain the discrepancy: we document a systematic, costly heuristic process when selling but not when buying.
ISSN:0898-2937
DOI:10.3386/w29076