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Deviations from Norms and Informed Trading

Author

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  • Kumar, Alok
  • Page, Jeremy K.

Abstract

Investment managers are subject to personal and institutional norms that can constrain their investment choices. We conjecture that norm-constrained investors deviate from such norms only when they have compelling information, and we predict that deviating investments earn relatively high abnormal returns ex post. Consistent with our conjecture, we find that institutions averse to holding lottery-like stocks or sin stocks earn relatively high abnormal returns when they choose to hold such stocks. We find similar but weaker results for deviations from broader style categories. Overall, our evidence indicates that deviations from established institutional or social norms signal informed investing.

Suggested Citation

  • Kumar, Alok & Page, Jeremy K., 2014. "Deviations from Norms and Informed Trading," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 49(4), pages 1005-1037, August.
    • Handle: RePEc:cup:jfinqa:v:49:y:2014:i:04:p:1005-1037_00
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    Cited by:

    1. Gunnar Gutsche, 2019. "Individual and Regional Christian Religion and the Consideration of Sustainable Criteria in Consumption and Investment Decisions: An Exploratory Econometric Analysis," Journal of Business Ethics, Springer, vol. 157(4), pages 1155-1182, July.
    2. Al-Awadhi, Abdullah M., 2019. "Deviation from religious trading norms," Journal of Behavioral and Experimental Finance, Elsevier, vol. 22(C), pages 22-30.
    3. Li, Jian, 2022. "Financial risk-taking, religiosity and denomination heterogeneity," Journal of Empirical Finance, Elsevier, vol. 66(C), pages 74-98.
    4. Shi, Huai-Long & Zhou, Wei-Xing, 2021. "Horse race of weekly idiosyncratic momentum strategies with respect to various risk metrics: Evidence from the Chinese stock market," The North American Journal of Economics and Finance, Elsevier, vol. 58(C).
    5. Jing Xie, 2024. "Stock-Picking by Mutual Funds: Evidence from Trading in Family-Controlled Firms," Working Papers 202411, University of Macau, Faculty of Business Administration.
    6. Tse-Chun Lin & Xin Liu, 2018. "Skewness, Individual Investor Preference, and the Cross-section of Stock Returns [Illiquidity and stock returns: cross-section and time-series effects]," Review of Finance, European Finance Association, vol. 22(5), pages 1841-1876.
    7. Andreas G. F. Hoepner & Lisa Schopohl, 2020. "State Pension Funds and Corporate Social Responsibility: Do Beneficiaries’ Political Values Influence Funds’ Investment Decisions?," Journal of Business Ethics, Springer, vol. 165(3), pages 489-516, September.
    8. Andreas Ziegler, 2017. "Economic calculus or personal and social values? A micro-econometric analysis of the acceptance of climate and energy policy measures," MAGKS Papers on Economics 201716, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    9. Fauver, Larry & McDonald, Michael B., 2015. "Culture, agency costs, and governance: International evidence on capital structure," Pacific-Basin Finance Journal, Elsevier, vol. 34(C), pages 1-23.
    10. Gunnar Gutsche & Anja Köbrich León & Andreas Ziegler, 2016. "On the relevance of psychological motives, values, and norms for socially responsible investments: An econometric analysis," MAGKS Papers on Economics 201641, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    11. Kelley Bergsma & Jitendra Tayal, 2019. "Short Interest and Lottery Stocks," Financial Management, Financial Management Association International, vol. 48(1), pages 187-227, March.
    12. Daniel Brodback & Nadja Guenster & David Mezger, 2019. "Altruism and egoism in investment decisions," Review of Financial Economics, John Wiley & Sons, vol. 37(1), pages 118-148, January.
    13. Andreas Oehler & Julian Schneider, 2022. "Gambling with lottery stocks?," Journal of Asset Management, Palgrave Macmillan, vol. 23(6), pages 477-503, October.
    14. Ziegler, Andreas, 2019. "The Relevance of Attitudinal Factors for the Acceptance of Energy Policy Measures: A Micro-econometric Analysis," Ecological Economics, Elsevier, vol. 157(C), pages 129-140.
    15. Andreas Oehler & Julian Schneider, 2023. "Social trading: do signal providers trigger gambling?," Review of Managerial Science, Springer, vol. 17(4), pages 1269-1331, May.

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