Institutional Investors, Past Performance, and Dynamic Loss Aversion
Using a proprietary database of currency trades, this paper explores the effects of trading gains and losses on risk-taking among large institutional investors. We find that institutional investors, unlike individuals, are not prone to the disposition effect. Instead, institutions aggressively reduc...
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| Veröffentlicht in: | Journal of financial and quantitative analysis 2009-02, Vol.44 (1), p.155-188 |
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| container_end_page | 188 |
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| container_title | Journal of financial and quantitative analysis |
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| creator | O’Connell, Paul G. J. Teo, Melvyn |
| description | Using a proprietary database of currency trades, this paper explores the effects of trading gains and losses on risk-taking among large institutional investors. We find that institutional investors, unlike individuals, are not prone to the disposition effect. Instead, institutions aggressively reduce risk following losses and mildly increase risk following gains. This asymmetry is more pronounced later in the calendar year and among older and more experienced funds. We show that such performance dependence is consistent with dynamic loss aversion (Barberis, Huang, and Santos (2001)) and overconfidence. In addition, prior institutional gains and losses have palpable implications for future prices. |
| doi_str_mv | 10.1017/S0022109009090048 |
| format | Article |
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| source | Jstor Complete Legacy; Cambridge University Press Journals Complete; EBSCOhost Business Source Complete |
| subjects | Certificates of deposit Coefficients Currency Currency market Foreign exchange Fund management Institutional investments Institutions Investment analysis Investment risk Investors Loss aversion Past performance Prices Quantitative analysis Realized gains Risk reduction Risk taking Statistical significance Trade |
| title | Institutional Investors, Past Performance, and Dynamic Loss Aversion |
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