The Consequences of Non-Trading Institutional Investors

63 Pages Posted: 24 Jan 2018 Last revised: 8 Jun 2022

See all articles by M. Vahid Irani

M. Vahid Irani

University of South Carolina - Darla Moore School of Business

Hugh Hoikwang Kim

University of South Carolina, Darla Moore School of Business

Date Written: June 7, 2022

Abstract

We document that institutional investors do not trade a single share, on average, in one of five stocks in their portfolio for an extended period. Investors with high inaction are likely to underperform in the future. Our results show a similar underperformance for stocks with a high non-trading level of institutional investors. We investigate several behavioral biases as potential drivers of the non-trades and find no evidence of distraction, overconfidence, and disposition effects. Institutional investors' tendency to sell stocks with salient price movements and recency bias best explain their inactions. Overall, the non-trading behavior of institutional investors serves as a unique predictor for their future performance and potential behavioral biases are driving this predictability.

Keywords: non-trades, institutional investors, portfolio management, behavioral bias

JEL Classification: G11, G23, G40

Suggested Citation

Irani, M. Vahid and Kim, Hugh Hoikwang, The Consequences of Non-Trading Institutional Investors (June 7, 2022). Available at SSRN: https://ssrn.com/abstract=3103741 or http://dx.doi.org/10.2139/ssrn.3103741

M. Vahid Irani (Contact Author)

University of South Carolina - Darla Moore School of Business ( email )

1014 Greene Street
Columbia, SC 29208
United States

HOME PAGE: http://sc.edu/study/colleges_schools/moore/directory/irani_mohammad.php

Hugh Hoikwang Kim

University of South Carolina, Darla Moore School of Business ( email )

1014 Greene Street
Columbia, SC 29208
United States

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