Tournament-type utility, absolute cumulative intra-quarter return, institutional feedback trading and return autocorrelation

Numan Ülkü and Justyna Dul

Journal of Behavioral and Experimental Finance, 2025, vol. 45, issue C

Abstract: We examine the behavioral basis of Johnson’s (2016) model of competition among asset managers with tournament type utility, offered to explain short-horizon reversals in stock market returns. First, we report that the intriguing pattern -the absolute cumulative intra-quarter return rtQ drives negative autocorrelation in S&P500 returns-, by which Johnson (2016) supports the disagreement-about-persistence (DAP) mechanism in his model, pervasively holds in international stock markets. In contrast, we find limited evidence of institutional trading behavior consistent with the DAP mechanism, using data with institutional trader identities from Finland and S&P500 futures position data. The pattern’s association with the DAP mechanism is doubtful. We document a new empirical fact, which provides a more robust alternative explanation compatible with the pervasiveness of this pattern: rtQ drives the intensity of aggregate institutional positive feedback trading, which in turn drives time-variation in return autocorrelation.

Keywords: Asset managers; Tournament-type utility; Disagreement about persistence; Absolute cumulative intra-quarter return; Institutional positive feedback trading; Stock return autocorrelation (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:beexfi:v:45:y:2025:i:c:s2214635024001254

DOI: 10.1016/j.jbef.2024.101010

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