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

52 Pages Posted: 2 Jan 2019 Last revised: 11 May 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: May 8, 2019

Abstract

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

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 (May 8, 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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