Selling Fast and Buying Slow: Heuristics and Trading Performance of Institutional Investors |
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| Authors: | KLAKOW AKEPANIDTAWORN RICK DI MASCIO ALEX IMAS LAWRENCE D.W. SCHMIDT |
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| Affiliation: | 1. Klakow Akepanidtaworn is at International Monetary Fund. Rick Di Mascio is Inalytics Ltd. Alex Imas is at University of Chicago Booth School of Business. Lawrence Schmidt is at MIT Sloan School of Management. We thank Bronson Argyle;2. Ned Augenblick;3. Aislinn Bohren;4. Pedro Bordalo;5. John Campbell;6. Colin Camerer;7. Cary Frydman;8. Samuel Hartzmark;9. David Hirshleifer;10. Zwetelina Iliewa;11. Lawrence Jin;12. David Laibson;13. Ulrike Malmendier;14. Joshua Miller;15. Terry Odean;16. Alex Rees-Jones;17. Andrei Shleifer;18. Richard Thaler;19. Tuomo Vuolteenaho;20. Russ Wermers;21. and conference and seminar participants at the NBER Behavioral Finance Meeting, Society of Judgment and Decision Making Conference, WFA Annual Conference, Booth School of Business, UC Berkeley, briq Institute, Caltech, ETH Zurich, Florida State, Harvard Business School, Higher School of Economics, New School of Economics, University of Amsterdam, and University of Frankfurt for helpful comments. We thank Kushan Tyagi, and especially Brice Green, for outstanding research assistance. The views expressed in the paper are solely those of the authors and do not necessarily represent the views of the institutions to which the authors are affiliated. We have read The Journal of Finance's disclosure policy;22. Akepanidtaworn, Imas, and Schmidt have nothing to disclose. Di Mascio is the Owner and CEO of Inalytics, the firm that has provided the data for the research paper. |
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| Abstract: | ![]()
Are market experts prone to heuristics, and do these heuristics transfer across buying and selling domains? We investigate this question using a unique data set of institutional investors with portfolios averaging $573 million. A striking finding emerges: While there is 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 an asymmetric allocation of cognitive resources such as attention can explain the discrepancy: We document a systematic, costly heuristic process for selling but not for buying. |
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