Stock Characteristics, Investor Type, and Market Myopia

This paper investigates the role of stock characteristics and investor type in market myopia. Using the Generalized Method of Moments (GMM) to control for endogeneity, we obtain evidence indicating that market myopia is greater among stocks that are relatively hard-to-value and hard-to-arbitrage, and find this conclusion to be robust to the choice of proxy for these characteristics. We also obtain a significantly negative relationship between institutional ownership and market myopia, due to the former acting as informed traders who exploit mispricing created by individual traders. It is important to note that the impact of their role becomes significant only when they have a sizeable share in firm ownership, as is the case of UK mutual funds and pension funds and Spanish banks.