Abstract
Using a large transaction level dataset, we find that institutional investors can make economically insignificant -4 to 9 basis points net profit on their marked-to-market portfolio of buy – sell transactions over 1-day to 4-week holding period. The negative net marked-to-market profit comes exclusively from trades with 1-day holding period. We find no evidence of overconfidence, biased self-attribution, or disposition effect among institutional investors. Pension fund managers outperform money managers. Institutions engage in short-term trades despite earning net zero return for liquidity, tax-minimization, risk-management, and window-dressing reasons. Among these non-profit maximizing rational motives for trading, liquidity trading motive is the strongest.
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