Institutions and the book-to-market effect: The role of investment horizon
Date
2022-11-16
Authors
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Source Title
International Review of Economics & Finance
Print ISSN
1059-0560
Electronic ISSN
1873-8036
Publisher
Elsevier BV
Volume
84
Issue
Pages
140 - 153
Language
en
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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.