Uncertainty and Trading Strategies of Institutional Investors

56 Pages Posted: 20 Mar 2009

See all articles by Itzhak Ben-David

Itzhak Ben-David

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER)

John A. Doukas

Old Dominion University - Strome College of Business

David A. Hirshleifer

University of California, Irvine - Paul Merage School of Business; NBER

Date Written: March 18, 2009

Abstract

We present evidence that uncertainty affects trading strategies of institutional investors. Using 20 years of holdings data of U.S. institutional investors, we document that institutional investors hold high uncertainty stocks for shorter periods and they earn lower profits from trading these stocks. Furthermore, we find that investors tend to sell winner stocks with high uncertainty quicker. This trading pattern, however, does not hold for loser stocks. The aggregate effect of this asymmetry is that the disposition effect intensifies as uncertainty increases. We argue that these effects are consistent with the hypothesis that institutional investors exhibit stronger behavioral biases when trading stocks with high uncertainty.

Keywords: Institutional investors, Trading volume, Overconfidence, Disposition effect, Uncertainty, Ambiguity, Investment strategies

JEL Classification: G11, G12, G15, F30

Suggested Citation

Ben-David, Itzhak and Doukas, John A. and Hirshleifer, David A., Uncertainty and Trading Strategies of Institutional Investors (March 18, 2009). Available at SSRN: https://ssrn.com/abstract=1364898 or http://dx.doi.org/10.2139/ssrn.1364898

Itzhak Ben-David (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Fisher 700D
Columbus, OH 43210-1144
United States
773 988 1353 (Phone)

HOME PAGE: http://fisher.osu.edu/fin/faculty/Ben-David/index.htm

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://fisher.osu.edu/fin/faculty/Ben-David/

John A. Doukas

Old Dominion University - Strome College of Business ( email )

2080 Constant Hall
Suite 2080
Norfolk, VA 23529-0222
United States
757-683-5521 (Phone)

HOME PAGE: http://www.efmaefm.org/0DOUKAS/doukas.php

David A. Hirshleifer

University of California, Irvine - Paul Merage School of Business ( email )

Irvine, CA California 92697-3125
United States

HOME PAGE: http://sites.uci.edu/dhirshle/

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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