Selling Fast & Buying Slow

Alex Imas of Carnegie Mellon University, Lawrence Schmidt of MIT Sloan School of Management, Klakow Akepanidtaworn of University of Chicago Booth School of Business and Rick Di Mascio, CEO and Founder of Inalytics, co-authored the paper Selling fast & buying slow: Heuristics & trading performance of institutional investors. The team studied 783 institutional portfolios from Inalytics’ anonymised database of elite equity portfolio managers.

In summary, the research revealed that individual selling decisions cost managers nearly 100 basis points of performance annually. The paper goes on to uncover why the loss of alpha is so great and even suggests that a randomised selling approach would benefit most institutional investors, who do not historically employ the same rigorous research methodologies when selling their holdings as they do when making a decision to buy.

Download the full academic paper or contact us to learn more about how we analyse portfolios and decision making to improve the investment process and help select skilful portfolio managers.

Are shorts just negative longs?

This Academic paper which uses evidence from detailed hedge fund portfolio data was co-authored by Bastian von Beschwitz of Federal Reserve Board & Sandro Lunghi of Inalytics.

Using detailed data on the trades and portfolio holdings of long-short equity hedge funds, we examine the differences between trades related to long and short positions. We find that long buys and short sells are informed, but that long sells and short buys are uninformed. In fact, it is possible to generate significant alphas by taking the opposite trades to long sells and short buys implying that hedge funds close their positions too early and “leave money on the table”. Furthermore, while hedge funds trade on momentum when establishing both long and short positions, follow-up orders exhibit momentum for shorts and are contrarian for longs. We argue this comes from hedge funds’ desires to keep their position sizes stable.

Download the full academic paper or contact us to learn more about how we analyse portfolios and decision making to improve the investment process and help select skilful portfolio managers.

Alpha Decay

Rick Di Mascio of Inalytics co-authored an Academic paper with, Anton Lines of Columbia Business School and Narayan Y. Naik of London Business School.

Using a novel sample of professional asset managers, they document positive incremental alpha on newly purchased stocks that decays over twelve months. While managers are successful forecasters at these short-to-medium horizons, their average holding period is substantially longer (2.2 years). Both slow alpha decay and the horizon mismatch can be explained by strategic trading behaviour. Managers accumulate positions gradually and unwind gradually once the alpha has run out; they trade more aggressively when the number of competitors and/or correlation among information signals is high, and do not increase trade size after unexpected capital flows. Alphas are lower when competition/correlation increases.

Download the full academic paper or contact us to learn more about how we analyse portfolios and decision making to improve the investment process and help select skilful portfolio managers.