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Are Domestic Household Investors Better Performers than Foreign Institutions? New Evidence from Finland

In: Behavioral Finance WHERE DO INVESTORS' BIASES COME FROM?

Author

Listed:
  • Peter L. Swan
  • P. Joakim Westerholm

Abstract

We replicate and extend the methodology of Grinblatt and Keloharju (2000) to find that foreign institutional investors in Finland no longer achieve superior performance. This is despite their persistence in adopting ‘positive feedback’ trading strategies. We find that individuals and households outperform over most horizons even though they adopt contrarian negative feedback trading strategies. Foreign institutions appear to suffer from incentive and informational disadvantages that encourage ‘trend-chasing.’ The informationless strategy of buying past winners and selling past losers can no longer be associated with superior performance. Moreover, it is no longer correct to classify unambiguously household and individual investors as random ‘noise traders.’

Suggested Citation

  • Peter L. Swan & P. Joakim Westerholm, 2016. "Are Domestic Household Investors Better Performers than Foreign Institutions? New Evidence from Finland," World Scientific Book Chapters, in: Itzhak Venezia (ed.), Behavioral Finance WHERE DO INVESTORS' BIASES COME FROM?, chapter 4, pages 115-155, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789813100091_0004
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    Cited by:

    1. Carlo Da Dalt & David Feldman & Gerald Garvey & Peter Joakim Westerholm, 2019. "Contrarians or momentum chasers? Individual investors’ behavior when trading exchange‐traded funds," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 39(5), pages 553-578, May.

    More about this item

    Keywords

    Behavioral Finance; Rationality; Experimental Finance; Reference Points; Professionals; Gender; Culture and Finance; Equity Premium;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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