IDEAS home Printed from https://ideas.repec.org/p/han/dpaper/dp-314.html
   My bibliography  Save this paper

The Use of Trading Strategies by Fund Managers: Some First Survey Evidence

Author

Listed:
  • Menkhoff, Lukas
  • Schmidt, Ulrich

Abstract

Our questionnaire survey finds that most fund managers rely on the strategies of buy-and-hold, momentum and contrarian trading. These strategies are typically applied mutually. Their use is rooted in the attributes and beliefs of the respective fund managers: buy-and-hold traders behave fundamentally oriented, risk averse and less (over)confident than others. Momentum traders appear as the least risk averse professionals going aggressively with the trend. Contrarian traders, however, show signs of overconfidence and peculiar risk aversion, both indicating difficulties in successful strategy implementation. The revealed behavioural patterns are not easily reconciled with efficient markets.

Suggested Citation

  • Menkhoff, Lukas & Schmidt, Ulrich, 2005. "The Use of Trading Strategies by Fund Managers: Some First Survey Evidence," Hannover Economic Papers (HEP) dp-314, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    • Handle: RePEc:han:dpaper:dp-314
    as

    Download full text from publisher

    File URL: http://diskussionspapiere.wiwi.uni-hannover.de/pdf_bib/dp-314.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Lakonishok, Josef & Shleifer, Andrei & Vishny, Robert W, 1994. "Contrarian Investment, Extrapolation, and Risk," Journal of Finance, American Finance Association, vol. 49(5), pages 1541-1578, December.
    2. Klayman, Joshua & Soll, Jack B. & Gonzalez-Vallejo, Claudia & Barlas, Sema, 1999. "Overconfidence: It Depends on How, What, and Whom You Ask, , , , , , , , ," Organizational Behavior and Human Decision Processes, Elsevier, vol. 79(3), pages 216-247, September.
    3. Russ Wermers, 2000. "Mutual Fund Performance: An Empirical Decomposition into Stock-Picking Talent, Style, Transactions Costs, and Expenses," Journal of Finance, American Finance Association, vol. 55(4), pages 1655-1703, August.
    4. Keim, Donald B. & Madhavan, Ananth, 1995. "Anatomy of the trading process Empirical evidence on the behavior of institutional traders," Journal of Financial Economics, Elsevier, vol. 37(3), pages 371-398, March.
    5. Russ Wermers, 2000. "Mutual Fund Performance: An Empirical Decomposition into Stock‐Picking Talent, Style, Transactions Costs, and Expenses," Journal of Finance, American Finance Association, vol. 55(4), pages 1655-1695, August.
    6. Barberis, Nicholas & Thaler, Richard, 2003. "A survey of behavioral finance," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 18, pages 1053-1128, Elsevier.
    7. Carhart, Mark M, 1997. "On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    8. De Long, J Bradford & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, 1990. "Noise Trader Risk in Financial Markets," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 703-738, August.
    9. Shapira, Zur & Venezia, Itzhak, 2001. "Patterns of behavior of professionally managed and independent investors," Journal of Banking & Finance, Elsevier, vol. 25(8), pages 1573-1587, August.
    10. Scharfstein, David S & Stein, Jeremy C, 1990. "Herd Behavior and Investment," American Economic Review, American Economic Association, vol. 80(3), pages 465-479, June.
    11. Robert J. Shiller, 2003. "From Efficient Markets Theory to Behavioral Finance," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 83-104, Winter.
    12. Terrance Odean, 1998. "Are Investors Reluctant to Realize Their Losses?," Journal of Finance, American Finance Association, vol. 53(5), pages 1775-1798, October.
    13. Oberlechner, Thomas, 2001. "Importance of Technical and Fundamental Analysis in the European Foreign Exchange Market," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 6(1), pages 81-93, January.
    14. Schiereck, D. & De Bondt, W. & Weber, M., 1999. "Contrarian and Momentum Strategies in Germany," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 35306, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    15. 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.
    16. John M. Griffin & Xiuqing Ji & J. Spencer Martin, 2003. "Momentum Investing and Business Cycle Risk: Evidence from Pole to Pole," Journal of Finance, American Finance Association, vol. 58(6), pages 2515-2547, December.
    17. David Hirshleifer, 2001. "Investor Psychology and Asset Pricing," Journal of Finance, American Finance Association, vol. 56(4), pages 1533-1597, August.
    18. Burton G. Malkiel, 2003. "Passive Investment Strategies and Efficient Markets," European Financial Management, European Financial Management Association, vol. 9(1), pages 1-10, March.
    19. Gehrig, Thomas & Menkhoff, Lukas, 2004. "The use of flow analysis in foreign exchange: exploratory evidence," Journal of International Money and Finance, Elsevier, vol. 23(4), pages 573-594, June.
    20. C. L. Marston & B. M. Craven, 1998. "A survey of corporate perceptions of short-termism among analysts and fund managers," The European Journal of Finance, Taylor & Francis Journals, vol. 4(3), pages 233-256.
    21. Arnswald, Torsten, 2001. "Investment Behaviour of German Equity Fund Managers - An Exploratory Analysis of Survey Data," Discussion Paper Series 1: Economic Studies 2001,08, Deutsche Bundesbank.
    22. De Bondt, Werner F M & Thaler, Richard, 1985. "Does the Stock Market Overreact?," Journal of Finance, American Finance Association, vol. 40(3), pages 793-805, July.
    23. S.G. Badrinath & Sunil Wahal, 2002. "Momentum Trading by Institutions," Journal of Finance, American Finance Association, vol. 57(6), pages 2449-2478, December.
    24. Glaser, Markus & Nöth, Markus & Weber, Martin, 2003. "Behavioral Finance," Sonderforschungsbereich 504 Publications 03-14, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
    25. Thomas Gehrig & Lukas Menkhoff, 2006. "Extended evidence on the use of technical analysis in foreign exchange," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 11(4), pages 327-338.
    26. Cheung, Yin-Wong & Chinn, Menzie David, 2001. "Currency traders and exchange rate dynamics: a survey of the US market," Journal of International Money and Finance, Elsevier, vol. 20(4), pages 439-471, August.
    27. Shefrin, Hersh & Statman, Meir, 1985. "The Disposition to Sell Winners Too Early and Ride Losers Too Long: Theory and Evidence," Journal of Finance, American Finance Association, vol. 40(3), pages 777-790, July.
    28. Taylor, Mark P. & Allen, Helen, 1992. "The use of technical analysis in the foreign exchange market," Journal of International Money and Finance, Elsevier, vol. 11(3), pages 304-314, June.
    29. Terrance Odean, 1999. "Do Investors Trade Too Much?," American Economic Review, American Economic Association, vol. 89(5), pages 1279-1298, December.
    30. Narasimhan Jegadeesh & Sheridan Titman, 2001. "Profitability of Momentum Strategies: An Evaluation of Alternative Explanations," Journal of Finance, American Finance Association, vol. 56(2), pages 699-720, April.
    31. Shiller, 021Robert J. & Pound, John, 1989. "Survey evidence on diffusion of interest and information among investors," Journal of Economic Behavior & Organization, Elsevier, vol. 12(1), pages 47-66, August.
    32. Bernd Lucke, 2003. "Are technical trading rules profitable? Evidence for head-and-shoulder rules," Applied Economics, Taylor & Francis Journals, vol. 35(1), pages 33-40.
    33. Jegadeesh, Narasimhan & Titman, Sheridan, 1993. "Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency," Journal of Finance, American Finance Association, vol. 48(1), pages 65-91, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Marina Nikiforow, 2010. "Does training on behavioural finance influence fund managers' perception and behaviour?," Applied Financial Economics, Taylor & Francis Journals, vol. 20(7), pages 515-528.
    2. Eduardo Roca & Victor Wong, 2008. "An analysis of the sensitivity of Australian superannuation funds to market movements: a Markov regime switching approach," Applied Financial Economics, Taylor & Francis Journals, vol. 18(7), pages 583-597.
    3. Alexander Franck & Andreas Walter & Johannes Witt, 2013. "Momentum strategies of German mutual funds," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 27(3), pages 307-332, September.
    4. Daniel Fricke & Thomas Lux, 2015. "The effects of a financial transaction tax in an artificial financial market," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 10(1), pages 119-150, April.
    5. Lang, Gunnar & Schäfer, Henry, 2013. "What is the wind behind the sails to go abroad? Empirical evidence from the mutual fund industry," ZEW Discussion Papers 13-022, ZEW - Leibniz Centre for European Economic Research.
    6. Arun Kumar Misra & Sabyasachi Mohapatra, 2015. "Indexing CNX NIFTY 50 Momentum Effects," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 9(2), pages 157-178, May.
    7. Jo-Hui Chen, 2010. "Gender difference and job replacement for mutual fund," Quality & Quantity: International Journal of Methodology, Springer, vol. 44(4), pages 661-671, June.
    8. Bruce Mizrach & Susan Weerts, 2006. "Highs and Lows: A Behavioral and Technical Analysis," Departmental Working Papers 200610, Rutgers University, Department of Economics.
    9. Lukas Menkhoff & Rafael Rebitzky & Michael Schroder, 2008. "Do dollar forecasters believe too much in PPP?," Applied Economics, Taylor & Francis Journals, vol. 40(3), pages 261-270.
    10. Naresh Kumar Devulapally & Tulasi Narendra Das Tripurana, 2023. "Physical Momentum in the Indian Stock Market," Papers 2302.13245, arXiv.org.
    11. Hakan Er & Adnan Hushmat, 2017. "The application of technical trading rules developed from spot market prices on futures market prices using CAPM," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 7(3), pages 313-353, December.
    12. Christopher J. Neely & Paul A. Weller, 2011. "Technical analysis in the foreign exchange market," Working Papers 2011-001, Federal Reserve Bank of St. Louis.
    13. Markus Demary, 2011. "Transaction taxes, greed and risk aversion in an agent-based financial market model," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 6(1), pages 1-28, May.
    14. Ramiah, Vikash & Xu, Xiaoming & Moosa, Imad A., 2015. "Neoclassical finance, behavioral finance and noise traders: A review and assessment of the literature," International Review of Financial Analysis, Elsevier, vol. 41(C), pages 89-100.
    15. Beckmann, Daniela & Menkhoff, Lukas & Suto, Megumi, 2008. "Does culture influence asset managers' views and behavior?," Journal of Economic Behavior & Organization, Elsevier, vol. 67(3-4), pages 624-643, September.
    16. Manjrekar, Rajesh & Sinha, Pankaj, 2010. "Myopic investment view of the Indian mutual fund industry," MPRA Paper 22458, University Library of Munich, Germany.
    17. Christoph Gort & Mei Wang, 2010. "Overconfidence and Active Management," Chapters, in: Brian Bruce (ed.), Handbook of Behavioral Finance, chapter 12, Edward Elgar Publishing.
    18. Białkowski, Jędrzej & Bohl, Martin T. & Kaufmann, Philipp & Wisniewski, Tomasz P., 2013. "Do mutual fund managers exploit the Ramadan anomaly? Evidence from Turkey," Emerging Markets Review, Elsevier, vol. 15(C), pages 211-232.
    19. Christine Lai & Tsung-Chyan Lai, 2009. "Analysing the c-minus-age strategy for life-cycle investing," Applied Economics Letters, Taylor & Francis Journals, vol. 16(7), pages 711-718.
    20. Zamri Ahmad & Haslindar Ibrahim & Jasman Tuyon, 2018. "Governance of Behavioural Biases in Asset Management Industry: Insights from Fund Managers in Malaysia," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 14(2), pages 65-102.
    21. Vo, Xuan Vinh & Truong, Quang Binh, 2018. "Does momentum work? Evidence from Vietnam stock market," Journal of Behavioral and Experimental Finance, Elsevier, vol. 17(C), pages 10-15.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Brozynski, Torsten & Menkhoff, Lukas & Schmidt, Ulrich, 2003. "The Use of Momentum, Contrarian and Buy-&-Hold Strategies: Survey Evidence from Fund Managers," Hannover Economic Papers (HEP) dp-290, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    2. Menkhoff, Lukas & Nikiforow, Marina, 2009. "Professionals' endorsement of behavioral finance: Does it impact their perception of markets and themselves?," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 318-329, August.
    3. Lukas Menkhoff, 2002. "Institutional Investors: The External Costs of a Successful Innovation," Journal of Economic Issues, Taylor & Francis Journals, vol. 36(4), pages 907-933, December.
    4. Daniel, Kent & Hirshleifer, David & Teoh, Siew Hong, 2002. "Investor psychology in capital markets: evidence and policy implications," Journal of Monetary Economics, Elsevier, vol. 49(1), pages 139-209, January.
    5. Nikiforow, Marina, 2009. "Does training on behavioral finance influence fund managers' perception and behavior?," Hannover Economic Papers (HEP) dp-419, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    6. Torben Lütje & Lukas Menkhoff, 2007. "What drives home bias? Evidence from fund managers' views," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 12(1), pages 21-35.
    7. Menkhoff, Lukas, 2010. "The use of technical analysis by fund managers: International evidence," Journal of Banking & Finance, Elsevier, vol. 34(11), pages 2573-2586, November.
    8. Chakravarty, Sugato & Ray, Rina, 2020. "On short-term institutional trading skill, behavioral biases, and liquidity need," Journal of Corporate Finance, Elsevier, vol. 65(C).
    9. Martin Gold, 2010. "Fiduciary Finance," Books, Edward Elgar Publishing, number 13813.
    10. Lukas Menkhoff & Mark P. Taylor, 2007. "The Obstinate Passion of Foreign Exchange Professionals: Technical Analysis," Journal of Economic Literature, American Economic Association, vol. 45(4), pages 936-972, December.
    11. Menkhoff Lukas & Schmeling Maik & Schmidt Ulrich, 2010. "Are All Professional Investors Sophisticated?," German Economic Review, De Gruyter, vol. 11(4), pages 418-440, December.
    12. Tekçe, Bülent & Yılmaz, Neslihan & Bildik, Recep, 2016. "What factors affect behavioral biases? Evidence from Turkish individual stock investors," Research in International Business and Finance, Elsevier, vol. 37(C), pages 515-526.
    13. Itzhak Venezia, 2018. "Lecture Notes in Behavioral Finance," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 10751, December.
    14. Shen, Qian & Szakmary, Andrew C. & Sharma, Subhash C., 2005. "Momentum and contrarian strategies in international stock markets: Further evidence," Journal of Multinational Financial Management, Elsevier, vol. 15(3), pages 235-255, July.
    15. David Hirshleife, 2015. "Behavioral Finance," Annual Review of Financial Economics, Annual Reviews, vol. 7(1), pages 133-159, December.
    16. Baltzer, Markus & Jank, Stephan & Smajlbegovic, Esad, 2019. "Who trades on momentum?," Journal of Financial Markets, Elsevier, vol. 42(C), pages 56-74.
    17. Barber, Brad M. & Odean, Terrance & Zhu, Ning, 2009. "Systematic noise," Journal of Financial Markets, Elsevier, vol. 12(4), pages 547-569, November.
    18. Razvan Stefanescu & Ramona Dumitriu, 2016. "Contrarian and Momentum Profits during Periods of High Trading Volume preceded by Stock Prices Shocks," Risk in Contemporary Economy, "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration, pages 378-384.
    19. Campbell, John Y. & Ramadorai, Tarun & Schwartz, Allie, 2009. "Caught on tape: Institutional trading, stock returns, and earnings announcements," Journal of Financial Economics, Elsevier, vol. 92(1), pages 66-91, April.
    20. Stephan Schulmeister, 2007. "The Interaction Between the Aggregate Behaviour of Technical Trading Systems and Stock Price Dynamics," WIFO Working Papers 290, WIFO.

    More about this item

    Keywords

    market efficiency; buy-and-hold strategy; momentum trading; contrarian strategy; behavioural finance;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:han:dpaper:dp-314. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Heidrich, Christian (email available below). General contact details of provider: https://edirc.repec.org/data/fwhande.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.