Institutions and the book-to-market effect: The role of investment horizon
International Review of Economics and Finance, vol.84, pp.140-153, 2023 (SSCI, Scopus)
- Publication Type: Article / Article
- Volume: 84
- Publication Date: 2023
- Doi Number: 10.1016/j.iref.2022.10.017
- Journal Name: International Review of Economics and Finance
- Journal Indexes: Social Sciences Citation Index (SSCI), Scopus, ABI/INFORM, Business Source Elite, Business Source Premier, EconLit
- Page Numbers: pp.140-153
- Keywords: Book-to-market, Institutions, Investment horizon, Market overreaction
- TED University Affiliated: Yes
Abstract
In this study, we investigate the differential contribution of institutions with different investment horizons in the book-to-market effect. We find that long-horizon institutions tend to buy (sell) stocks with positive (negative) past intangible information. This behavior exacerbates market overreaction and magnifies intangible return reversals, thus contributing to the book-to-market effect. On the other hand, short-horizon institutions trade independent of intangible information, and their trading in the direction of intangible information does not contribute to the book-to-market effect. Moreover, our findings also support that short-horizon institutions are better informed than long-horizon institutions.