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Institutional Investors’ Investment Durations and Stock Return Anomalies: Momentum, Reversal, Accruals, Share Issuance and R&D Increases

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  • Martijn Cremers
  • Ankur Pareek

Abstract

This paper examines the effect of institutional investors? investment duration on the efficiency of stock prices. Using a new duration measure based on quarterly institutional investors? portfolio holdings, the presence of short-term institutional investors can help explain many of the best-known stock return anomalies, possibly because these investors are affected by behavioral biases like overconfidence. Specifically, we find that both momentum returns and subsequent returns reversal are much stronger for stocks with greater proportions of short-term institutional investors. The accruals and share issuance anomalies are also stronger for stocks held primarily by short-term institutional investors. Finally, short-term institutional investors do not seem to recognize the benefits of significant R&D increases, as they tend to under-react to these increases.

Suggested Citation

  • Martijn Cremers & Ankur Pareek, 2009. "Institutional Investors’ Investment Durations and Stock Return Anomalies: Momentum, Reversal, Accruals, Share Issuance and R&D Increases," Yale School of Management Working Papers amz2662, Yale School of Management, revised 04 Sep 2009.
  • Handle: RePEc:ysm:somwrk:amz2662
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    File URL: http://icfpub.som.yale.edu/publications/2662
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    References listed on IDEAS

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    Cited by:

    1. Cristina Cella & Andrew Ellul & Mariassunta Giannetti, 2013. "Investors' Horizons and the Amplification of Market Shocks," Review of Financial Studies, Society for Financial Studies, vol. 26(7), pages 1607-1648.
    2. Beber, Alessandro & Driessen, Joost & Tuijp, Patrick, 2011. "Pricing Liquidity Risk with Heterogeneous Investment Horizons," CEPR Discussion Papers 8710, C.E.P.R. Discussion Papers.

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