Briefings

Week InReview: January 11, 2019

What do professional investors do?

"We document a striking pattern: while the investors display clear skill in buying, their selling decisions underperform substantially. Positions added to the portfolio outperform both the benchmark and a strategy which randomly buys more shares of assets already held in the portfolio. This result holds both in terms of raw returns and adjusted for risk. In contrast, selling decisions not only fail to beat a no-skill strategy of selling another randomly chosen asset from the portfolio, they consistently underperform it by substantial amounts. PMs forego between 50 and 100 basis points over a 1 year horizon relative to this random selling strategy, depending on the specification. As with buys, the selling result is robust when adjusting for systematic risk of the assets sold."

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

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