Distracted Institutional Investors

Journal of Financial and Quantitative Analysis (forthcoming)

62 Pages Posted: 4 Jun 2016 Last revised: 7 Feb 2019

See all articles by Daniel Schmidt

Daniel Schmidt

HEC Paris - Finance Department

Date Written: August 15, 2018

Abstract

We investigate how distraction affects the trading behavior of professional asset managers. Exploring detailed transaction‐level data, we show that managers with a large fraction of portfolio stocks exhibiting an earnings announcement are significantly less likely to trade in other stocks, suggesting that these announcements absorb attention which is missing for the choice of which stocks to trade. This distraction effect is more pronounced for non‐passive managers that engage in active stock selection choices. Finally, we identify three channels through which distraction hurts managers’ performance: distracted managers trade less profitably, incur slightly higher transaction costs and are less likely to close losing positions.

Keywords: Inattention, Institutional Investors, Trading Behavior

Suggested Citation

Schmidt, Daniel, Distracted Institutional Investors (August 15, 2018). Journal of Financial and Quantitative Analysis (forthcoming), Available at SSRN: https://ssrn.com/abstract=2789001 or http://dx.doi.org/10.2139/ssrn.2789001

Daniel Schmidt (Contact Author)

HEC Paris - Finance Department ( email )

France
0652678597 (Phone)

HOME PAGE: http://daniel-schmidt.eu

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