Who Gains More by Trading – Institutions or Individuals?

55 Pages Posted: 24 Mar 2005 Last revised: 26 Nov 2010

See all articles by Granit San

Granit San

affiliation not provided to SSRN

Date Written: August 2010


This paper addresses the division of all trading, and investigates the cross-sectional variations in the return of stocks with different levels of trading activity by institutions and individuals. I find that institutions as a group do not gain more than their trading partners do. While over the entire sample period neither institutions nor individuals consistently earn superior gains by trading, there are more times and stronger evidence of comparative advantage of individuals. I also find that a plausible explanation for the lack of institutional trading advantage is that they mistime the momentum cycle: Institutions hold on to momentum trading too long thereby fail to exploit the return potential which trading on momentum offers. My findings challenge the mainstream view that institutions are information traders and individuals are noise traders.

Keywords: Institutional investors, individuals investors,noise traders, risk-adjusted performance, momentum

JEL Classification: G10, G12, G20

Suggested Citation

San, Granit, Who Gains More by Trading – Institutions or Individuals? (August 2010). Available at SSRN: https://ssrn.com/abstract=687415 or http://dx.doi.org/10.2139/ssrn.687415

Granit San (Contact Author)

affiliation not provided to SSRN

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