Institutions and the book-to-market effect: The role of investment horizon

Iqbal M. S., Salih A., Akdeniz L.

International Review of Economics and Finance, vol.84, pp.140-153, 2023 (SSCI) identifier

  • 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.