IDEAS home Printed from https://ideas.repec.org/a/eee/finmar/v77y2026ics1386418125000588.html

Can institutional investors always beat individual investors?

Author

Listed:
  • Yang, Yaqing
  • Kang, Junqing
  • Lou, Youcheng

Abstract

In an imperfectly competitive market, we find that an institutional investor with an information advantage consistently earns higher expected trading profits than sophisticated individual investors who internalize their price impact. However, when noise-trading volume and the noise-to-signal ratio are sufficiently high, the institutional investor underperforms naive individual investors who act as price-takers. The aggressive trading behavior of naive investors, driven by their failure to account for price impact, forces the institutional investor to reduce his trading aggressiveness. Our findings highlight that, under certain conditions, the irrationality of naive traders can erode the advantages of information-driven trading strategies.

Suggested Citation

  • Yang, Yaqing & Kang, Junqing & Lou, Youcheng, 2026. "Can institutional investors always beat individual investors?," Journal of Financial Markets, Elsevier, vol. 77(C).
    • Handle: RePEc:eee:finmar:v:77:y:2026:i:c:s1386418125000588
    DOI: 10.1016/j.finmar.2025.101018
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1386418125000588
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.finmar.2025.101018?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

    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:eee:finmar:v:77:y:2026:i:c:s1386418125000588. 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.

    We have no bibliographic references for this item. You can help adding them by using 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: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/finmar .

    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.