Optimality of Buy and Sell Timing Decisions by Investment Fund Managers

Abstract

We analyze a transaction-level proprietary data set to evaluate the timing of fund managers’ buying and selling activities. Comparing traded stocks’ performance prior to and subsequent to each transaction, we find that fund managers buy at a low price and sell at a high price. Unlike individual investors influenced by behavioral biases, fund managers seem not to be affected by biases such as disposition or endowment effects in making efficient timing decisions when trading stocks. For our sample data, we also find that the fund managers’ actual trading activity performs better than simple contrarian or momentum based strategies.