Are Domestic Household Investors Better Performers than Foreign Institutions? New Evidence from Finland

Swan, Peter L.; Westerholm, P. Joakim

doi:10.2139/ssrn.2996151

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Are Domestic Household Investors Better Performers than Foreign Institutions? New Evidence from Finland

2016, Behavioral Finance, Where Do Investors' Biases Come From?, Edited by Itzhak Venezia, Hackensack, NJ, World Scientific Publishing

39 Pages Posted: 6 Jul 2017

See all articles by Peter L. Swan

Peter L. Swan

University of New South Wales (UNSW Sydney; Financial Research Network (FIRN)

P. Joakim Westerholm

University of Sydney Business School

Date Written: July 1, 2017

Abstract

We replicate and extend the methodology of Grinblatt and Keloharju (2000) to find that foreign institutional investors in Finland no longer achieve superior performance. This is despite their persistence in adopting ‘positive-feedback’ trading strategies. We find that individuals and households outperform over most horizons even though they adopt negative-feedback trading strategies. Foreign institutions appear to suffer from incentive and informational disadvantages. We conclude that the informationless strategy of buying past winners and selling past losers can no longer be associated with superior performance. Moreover, it is no longer correct to classify unambiguously household and individual investors as ‘noise traders’.

Keywords: positive-feedback trading; agency problems; home-bias; noise trading

JEL Classification: G10

Suggested Citation: Suggested Citation

Swan, Peter Lawrence and Westerholm, P. Joakim, Are Domestic Household Investors Better Performers than Foreign Institutions? New Evidence from Finland (July 1, 2017). 2016, Behavioral Finance, Where Do Investors' Biases Come From?, Edited by Itzhak Venezia, Hackensack, NJ, World Scientific Publishing, Available at SSRN: https://ssrn.com/abstract=2996151 or http://dx.doi.org/10.2139/ssrn.2996151