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Institutions and the book-to-market effect: The role of investment horizon

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  • Iqbal, Muhammad Sabeeh
  • Salih, Aslihan
  • Akdeniz, Levent

Abstract

In this study, we investigate the differential contribution of institutions with different investment horizons in the book-to-market effect. We find that long-horizon institutions tend to buy (sell) stocks with positive (negative) past intangible information. This behavior exacerbates market overreaction and magnifies intangible return reversals, thus contributing to the book-to-market effect. On the other hand, short-horizon institutions trade independent of intangible information, and their trading in the direction of intangible information does not contribute to the book-to-market effect. Moreover, our findings also support that short-horizon institutions are better informed than long-horizon institutions.

Suggested Citation

  • Iqbal, Muhammad Sabeeh & Salih, Aslihan & Akdeniz, Levent, 2023. "Institutions and the book-to-market effect: The role of investment horizon," International Review of Economics & Finance, Elsevier, vol. 84(C), pages 140-153.
    • Handle: RePEc:eee:reveco:v:84:y:2023:i:c:p:140-153
    DOI: 10.1016/j.iref.2022.10.017
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    More about this item

    Keywords

    Institutions; Investment horizon; Book-to-market; Market overreaction;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • M1 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration
    • M2 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics
    • N2 - Economic History - - Financial Markets and Institutions

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