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

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

Peter Lawrence Swan

University of New South Wales (UNSW Sydney ( email )

School of Banking and Finance
UNSW Business School
Sydney NSW, NSW 2052
Australia
+61 2 9385 5871 (Phone)
+61 2 9385 6347 (Fax)

HOME PAGE: http://https://www.business.unsw.edu.au/our-people/peterswan

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

P. Joakim Westerholm (Contact Author)

University of Sydney Business School ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia

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