The Worst, the Best, Ignoring All the Rest: The Rank Effect and Trading Behavior

The Review of Financial Studies, Forthcoming

54 Pages Posted: 3 Oct 2014 Last revised: 20 Jan 2017

See all articles by Samuel M. Hartzmark

Samuel M. Hartzmark

Boston College - Carroll School of Management

Date Written: November 30, 2014

Abstract

I document a new stylized fact about how investors trade assets: individuals are more likely to sell the extreme winning and extreme losing positions in their portfolio (“the rank effect”). This effect is not driven by firm-specific information, holding period or the level of returns itself, but is associated with the salience of extreme portfolio positions. The rank effect is exhibited by both retail traders and mutual fund managers. The effect indicates that trades in a given stock depend on how it compares to other positions in an investor’s portfolio.

Suggested Citation

Hartzmark, Samuel M., The Worst, the Best, Ignoring All the Rest: The Rank Effect and Trading Behavior (November 30, 2014). The Review of Financial Studies, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2503987 or http://dx.doi.org/10.2139/ssrn.2503987

Samuel M. Hartzmark (Contact Author)

Boston College - Carroll School of Management ( email )

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United States