Are Domestic Household Investors Better Performers than Foreign Institutions? New Evidence from Finland*

Peter Swan and Joakim Westerholm

Chapter 4 in Behavioral Finance:Where Do Investors' Biases Come From?, 2016, pp 115-155 from World Scientific Publishing Co. Pte. Ltd.

Abstract: We replicate and extend the methodology of Grinblatt and Keloharju (2000) to find that foreign institutional investors in Finland no longer achieve superior performance. This is despite their persistence in adopting ‘positive feedback’ trading strategies. We find that individuals and households outperform over most horizons even though they adopt contrarian negative feedback trading strategies. Foreign institutions appear to suffer from incentive and informational disadvantages that encourage ‘trend-chasing.’ The informationless strategy of buying past winners and selling past losers can no longer be associated with superior performance. Moreover, it is no longer correct to classify unambiguously household and individual investors as random ‘noise traders.’

Keywords: Behavioral Finance; Rationality; Experimental Finance; Reference Points; Professionals; Gender; Culture and Finance; Equity Premium (search for similar items in EconPapers)
JEL-codes: D91 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (1)

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