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Patterns of Behavior of Professionally Managed and Independent Investors

26 Pages Posted: 12 Oct 2001  

Zur Shapira

Leonard N. Stern School of Business - Department of Economics; New York University (NYU) - Department of Management and Organizational Behavior

Itzhak Venezia

Hebrew University of Jerusalem - Jerusalem School of Business Administration

Date Written: June 11, 2000

Abstract

In this paper, we analyze the investment patterns of a large number of clients of a major Israeli brokerage house during 1994. We compare the behavior of clients making independent investment decisions to that of investors whose accounts were managed by brokerage professionals. Our main objective is to investigate whether the disposition effect (i.e., the tendency to sell winners quicker than losers), demonstrated in the US only for individual investors, also holds for professional investors. This analysis is important, as accepted financial theory predicts that prices are determined mainly by decisions made by professionals. We show that both professional and independent investors exhibit the disposition effect, although the effect is stronger for independent investors. The second objective of our study is the comparison of trade frequency, volume and profitability between independent and professionally managed accounts. We believe that these comparisons not only provide insights of their own, but also help to put the differences in the disposition effect in a wider perspective. We demonstrate that professionally managed accounts were more diversified and that round trips were both less correlated with the market and slightly more profitable than those of independent accounts.

Keywords: Investor behavior, Disposition effect, Professional vs. amateur investment decisions, Churning

JEL Classification: G11, G24

Suggested Citation

Shapira, Zur and Venezia, Itzhak, Patterns of Behavior of Professionally Managed and Independent Investors (June 11, 2000). USC Finance & Business Econ. Working Paper No. 01-3. Available at SSRN: https://ssrn.com/abstract=286784 or http://dx.doi.org/10.2139/ssrn.286784

Zur Shapira

Leonard N. Stern School of Business - Department of Economics ( email )

40 West Fourth Street, 7-06
New York, NY 10012
United States

New York University (NYU) - Department of Management and Organizational Behavior ( email )

44 West 4th Street
New York, NY 10012
United States

Itzhak Venezia (Contact Author)

Hebrew University of Jerusalem - Jerusalem School of Business Administration ( email )

Mount Scopus
Jerusalem, 91905
Israel

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