Overconfidence and Investor Size

Anders G. Ekholm, Daniel Pasternack
2002 Social Science Research Network  
Recent research documents that institutional or large investors act as antagonists to other investors by showing opposite trading behavior following disclosure of new information. Using an extremely comprehensive official transactions data set from Finland, we set out to explore the interrelation between investor size and behavior. More specifically, we test whether investor size is positively (negatively) correlated with investor reaction following positive (negative) news. We document robust
more » ... vidence of that investor size affects investor behavior under new information, as larger investors on average react more positively (negatively) to good (bad) news than smaller investors. We furthermore find that the performance of smaller, or more overconfident, investors is in general hurt by their behavior. In the light of this study it seems increasingly feasible that several recent findings of heterogeneous investor behavior are functions of differences in overconfidence. We are indebted to Juha-Pekka Kallunki, Eva Liljeblom, Joshua Livnat and Anders Löflund for comments and suggestions. We further gratefully acknowledge financial support received for the project from the Finnish Academy of Sciences, the Säästöpankkien Tutkimussäätiö and the Yrjö Jahnsson foundation.
doi:10.2139/ssrn.314419 fatcat:usx3whtcubceblfiabpu65a2fu