Selling Fast and Buying Slow: Heuristics and Trading Performance of Institutional Investors
52 Pages Posted: 2 Jan 2019 Last revised: 11 May 2019
Date Written: May 8, 2019
Is expertise portable across closely related domains? We investigate this question empirically using a unique dataset of market experts---institutional investors with portfolios averaging $573 million. A striking finding emerges: while there is clear evidence of skill in buying, the investors' selling decisions underperform substantially--even relative to random selling strategies. This holds despite the similarity between the two decisions in frequency, substance and consequences for portfolio performance. We present evidence that an asymmetric allocation of cognitive resources such as attention can explain the discrepancy: investors are prone to a systematic, costly heuristic process when selling but not when buying.
Keywords: Heuristics, Behavioral Finance, Expert Decision-Making, Limited Attention
JEL Classification: G02, G11, G23
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