Selling Fast and Buying Slow: Heuristics and Trading Performance of Institutional Investors

61 Pages Posted: 2 Jan 2019 Last revised: 28 Sep 2019

See all articles by Klakow Akepanidtaworn

Klakow Akepanidtaworn

University of Chicago - Booth School of Business; University of Chicago - Department of Economics

Rick Di Mascio

Inalytics Limited

Alex Imas

Carnegie Mellon University - Department of Social and Decision Sciences

Lawrence Schmidt

MIT Sloan School of Management

Date Written: September 2019

Abstract

Are market experts prone to heuristics, and if so, do they transfer across closely related domains --- buying and selling? We investigate this question using a unique dataset of institutional investors with portfolios averaging $573 million. A striking finding emerges: while there is clear evidence of skill in buying, 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 performance. Evidence suggests that an asymmetric allocation of cognitive resources such as attention can explain the discrepancy: we document 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

Suggested Citation

Akepanidtaworn, Klakow and Di Mascio, Rick and Imas, Alex and Schmidt, Lawrence, Selling Fast and Buying Slow: Heuristics and Trading Performance of Institutional Investors (September 2019). Available at SSRN: https://ssrn.com/abstract=3301277 or http://dx.doi.org/10.2139/ssrn.3301277

Klakow Akepanidtaworn

University of Chicago - Booth School of Business ( email )

University of Chicago - Department of Economics ( email )

1101 East 58th Street
Chicago, IL 60637
United States

Rick Di Mascio

Inalytics Limited ( email )

Croydon
United Kingdom

Alex Imas

Carnegie Mellon University - Department of Social and Decision Sciences ( email )

Pittsburgh, PA 15213-3890
United States

Lawrence Schmidt (Contact Author)

MIT Sloan School of Management ( email )

77 Massachusetts Avenue
Cambridge, MA 02139-4307
United States

HOME PAGE: http://https://sites.google.com/site/lawrencedwschmidt/home

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