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Opinion Divergence Among Professional Investment Managers

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  • Gang Hu
  • J. Ginger Meng
  • Mark E. Potter

Abstract

We find that opinion divergence among professional investment managers is commonplace, using a large sample of transaction‐level institutional trading data. When managers trade together, future returns are similar regardless if they are all buying or selling, inconsistent with the notion that professional investment managers possess stock picking ability or private information that is of investment value. However, when managers trade against each other, subsequent returns are low, especially for stocks that are difficult to short. This U‐shaped disagreement‐return relationship is consistent with Miller's (1977) hypothesis that, in the presence of short‐sale constraints, opinion divergence can cause an upward bias in prices.

Suggested Citation

  • Gang Hu & J. Ginger Meng & Mark E. Potter, 2008. "Opinion Divergence Among Professional Investment Managers," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 35(5‐6), pages 679-703, June.
  • Handle: RePEc:bla:jbfnac:v:35:y:2008:i:5-6:p:679-703
    DOI: 10.1111/j.1468-5957.2008.02083.x
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    Cited by:

    1. Ashiq Ali, 2008. "Discussion of Opinion Divergence Among Professional Investment Managers," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 35(5‐6), pages 704-708, June.
    2. Aaron Z. Pitluck, 2016. "Performing anonymity: Investors, brokers, and the malleability of material identity information in financial markets," Working Papers 1, Becker Friedman Institute for Research In Economics.
    3. Hu, Gang & Jo, Koren M. & Wang, Yi Alex & Xie, Jing, 2018. "Institutional trading and Abel Noser data," Journal of Corporate Finance, Elsevier, vol. 52(C), pages 143-167.
    4. Frey, Stefan & Herbst, Patrick & Walter, Andreas, 2014. "Measuring mutual fund herding – A structural approach," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 32(C), pages 219-239.

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