Opinion Divergence Among Professional Investment Managers

25 Pages Posted: 18 Jun 2008

See all articles by Gang Hu

Gang Hu

Hong Kong Polytechnic University - School of Accounting and Finance

J. Ginger Meng

Stonehill College - Department of Business Administration

Mark Potter

Babson College - Finance Division

Abstract

We find that opinion divergence among professional investment managers is commonplace, using a large sample of transaction-level institutional trading data. When managers trade together, future returns are similar regardless if they are all buying or selling, inconsistent with the notion that professional investment managers possess stock picking ability or private information that is of investment value. However, when managers trade against each other, subsequent returns are low, especially for stocks that are difficult to short. This U-shaped disagreement-return relationship is consistent with Miller's (1977) hypothesis that, in the presence of short-sale constraints, opinion divergence can cause an upward bias in prices.

Suggested Citation

Hu, Gang and Meng, J. Ginger and Potter, Mark E., Opinion Divergence Among Professional Investment Managers. Journal of Business Finance & Accounting, Vol. 35, Issue 5-6, pp. 679-703, June/July 2008. Available at SSRN: https://ssrn.com/abstract=1147285 or http://dx.doi.org/10.1111/j.1468-5957.2008.02083.x

Gang Hu (Contact Author)

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

M1038, Li Ka Shing Tower
Hung Hom, Kowloon
Hong Kong
(852) 3400 8455 (Phone)

HOME PAGE: http://ganghu.org

J. Ginger Meng

Stonehill College - Department of Business Administration ( email )

320 Washington Street
Easton, MA 02357
United States
508-565-1986 (Phone)

HOME PAGE: http://www.stonehill.edu/directory/j-ginger-meng/

Mark E. Potter

Babson College - Finance Division ( email )

Tomasso Hall #120
Babson Park, MA 02457-0310
United States
781-239-6492 (Phone)
781-239-5004 (Fax)

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