We find wide dispersion in trade holding periods for institutional money managers and pension funds. All of the funds execute round-trip trades lasting over a year; 96% of them also execute trades lasting less than one month, although average short-duration trade returns are negative. We find only limited evidence that institutions choose holding periods based on portfolio optimization and no evidence that short-duration trades are driven by the disposition effect. Our results are consistent with the agency problem that arises when clients cannot distinguish when a manager is “actively doing nothing” versus “simply doing nothing” as well as manager overconfidence.
Chakrabarty, B., Moulton, P. C., & Trzcinka, C. (2013, March). Institutional holding periods [Electronic version]. Paper presented at the annual Finance Down Under conference, Melbourne, Australia. Retrieved [insert date], from Cornell University, SHA School site: http://scholarship.sha.cornell.edu/conf/2/