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Momentum or contrarian investment strategies: Evidence from Dutch institutional investors

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  • de Haan, Leo
  • Kakes, Jan

Abstract

This paper analyses investment strategies of three types of Dutch institutional investors - pension funds, life insurers and non-life insurers - over the period 1999-2005. We use balance sheet and cash flow data, including purchases and sales of equity, fixed income and real estate. We trace asset reallocations back to both active trading and revaluations and link investment decisions to firm-specific characteristics and macroeconomic variables. Overall, our results indicate that all three investor types tend to be contrarian traders, i.e. they buy past losers and sell past winners. Especially pension funds showed this behaviour in the most turbulent part of the sample - the crash of 2002 and early 2003 - implying that these institutions have a stabilising impact on financial markets when this is needed most. Life insurers tend to be contrarian traders when they have a high proportion of unit-linked policies, while non-life insurers are contrarian when they have a more risky business model.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 35 (2011)
Issue (Month): 9 (September)
Pages: 2245-2251

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Handle: RePEc:eee:jbfina:v:35:y:2011:i:9:p:2245-2251

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Web page: http://www.elsevier.com/locate/jbf

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Keywords: Asset allocation Investment strategy Insurance companies Pension funds;

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References

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  1. Ferstl, Robert & Weissensteiner, Alex, 2009. "Asset-Liability Management under time-varying Investment Opportunities," MPRA Paper 15068, University Library of Munich, Germany.
  2. Grinblatt, Mark & Titman, Sheridan & Wermers, Russ, 1995. "Momentum Investment Strategies, Portfolio Performance, and Herding: A Study of Mutual Fund Behavior," American Economic Review, American Economic Association, vol. 85(5), pages 1088-1105, December.
  3. Lo, Andrew W. (Andrew Wen-Chuan) & MacKinlay, Archie Craig, 1955-., 1989. "When are contrarian profits due to stock market overreaction?," Working papers 3008-89., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  4. Chiang, Thomas C. & Zheng, Dazhi, 2010. "An empirical analysis of herd behavior in global stock markets," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1911-1921, August.
  5. Asem, Ebenezer, 2009. "Dividends and price momentum," Journal of Banking & Finance, Elsevier, vol. 33(3), pages 486-494, March.
  6. Mark Grinblatt, 2001. "What Makes Investors Trade?," Journal of Finance, American Finance Association, vol. 56(2), pages 589-616, 04.
  7. Terrance Odean, 1998. "Are Investors Reluctant to Realize Their Losses?," Journal of Finance, American Finance Association, vol. 53(5), pages 1775-1798, October.
  8. de Haan, Leo & Kakes, Jan, 2010. "Are non-risk based capital requirements for insurance companies binding?," Journal of Banking & Finance, Elsevier, vol. 34(7), pages 1618-1627, July.
  9. S.G. Badrinath & Sunil Wahal, 2002. "Momentum Trading by Institutions," Journal of Finance, American Finance Association, vol. 57(6), pages 2449-2478, December.
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Cited by:
  1. Juan Carlos Matallín-Sáez & Amparo Soler-Domínguez & Emili Tortosa-Ausina, 2014. "On the robustness of persistence in mutual fund performance," Working Papers 2014/01, Economics Department, Universitat Jaume I, Castellón (Spain).
  2. Aglietta, Michel & Brière, Marie & Rigot, Sandra & Signori, Ombretta, 2012. "Rehabilitating the role of active management for pension funds," Journal of Banking & Finance, Elsevier, vol. 36(9), pages 2565-2574.
  3. Alexander Franck & Andreas Walter & Johannes Witt, 2013. "Momentum strategies of German mutual funds," Financial Markets and Portfolio Management, Springer, vol. 27(3), pages 307-332, September.
  4. Dirk Broeders & Paul Hilbers & David Rijsbergen & Ningli Shen, 2014. "What Drives Pension Indexation in Turbulent Times? An Empirical Examination of Dutch Pension Funds," De Economist, Springer, vol. 162(1), pages 41-70, March.

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