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Opinion Divergence Among Professional Investment Managers
Author(s) -
Hu Gang,
Meng J. Ginger,
Potter Mark E.
Publication year - 2008
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/j.1468-5957.2008.02083.x
Subject(s) - divergence (linguistics) , stock (firearms) , miller , investment (military) , value (mathematics) , business , sample (material) , database transaction , investment decisions , investment style , transaction cost , economics , financial economics , return on investment , finance , microeconomics , open ended investment company , behavioral economics , law , philosophy , ecology , linguistics , chemistry , computer science , engineering , biology , chromatography , machine learning , political science , programming language , mechanical engineering , production (economics) , politics
We find that opinion divergence among professional investment managers is commonplace, using a large sample of transaction‐level institutional trading data. When managers trade together, future returns are similar regardless if they are all buying or selling, inconsistent with the notion that professional investment managers possess stock picking ability or private information that is of investment value. However, when managers trade against each other, subsequent returns are low, especially for stocks that are difficult to short. This U‐shaped disagreement‐return relationship is consistent with Miller's (1977) hypothesis that, in the presence of short‐sale constraints, opinion divergence can cause an upward bias in prices.