Abstract
We examine institutional investors' tendency to remain unchanged in their portfolio positions for an extended period, called portfolio inertia. Studying 40 million investor-stock quarterly observations, we document that institutional investors do not trade a single share in one of five stocks in their portfolio for at least a quarter of the year. Our analysis shows that institutional investors with high inertia are likely to underperform in the future. Portfolio sorting and the Fama-MacBeth regression analyses also show that stocks with high inertia of institutional investors are likely to underperform in the future, undermining investors' overall performance. We investigate several behavioral biases as potential drivers of inertia and find no evidence of distraction, overconfidence, and disposition effects. We find investors' tendency to sell stocks with salient price movements and recency bias best explains the inertia.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
