Warren Buffett Anomaly

Mingshan Zhang

Finance Research Letters, 2022, vol. 46, issue PB

Abstract: Warren Buffett is a long-term investor, but is required by law to disclose his trades every quarter. While the market reacts to the disclosure of his trades, the reaction is incomplete. From 1980 to 2018, it has been possible to achieve investment results similar to Buffett's own simply by mimicking his trades disclosed. Buffett's long-term strategy is surmised to exploit the underreaction to the public disclosures of his stock holding, which is further attributed to the overconfidence bias from some market participants. It is found that when Buffett buys stocks, financial analysts tend to downgrade the recommendation and institutions tend to sell at those times. This behavior by analysts and fund managers comports well with the view that financial professionals over-estimate their stock picking abilities or the precision of their private information and, as a consequence, underreact to public information in making their decisions.

Keywords: Institutions Trading; Underreaction; Market Anomaly; Overconfidence (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:46:y:2022:i:pb:s1544612321004530

DOI: 10.1016/j.frl.2021.102473

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