Distracted Institutional Investors

We investigate how distraction affects the trading behavior of professional asset managers. Exploring detailed transaction-level data, we show that managers with a large fraction of portfolio stocks exhibiting an earnings announcement are significantly less likely to trade in other stocks, suggesting that these announcements absorb attention which is missing for the choice of which stocks to trade. Hence, attention constraints can be binding even among this elite group of traders. Finally, we identify two channels through which distraction hurts managers’ performance: distracted managers fail to close losing positions and incur slightly higher transaction costs. ________________ * Preliminary and incomplete, please do not cite without permission. Daniel Schmidt is at HEC Paris, 1 rue de la Liberation, 78350 Jouy-en-Josas, France. Email: [email protected]. We acknowledge support by a public grant overseen by the French National Research Agency (ANR) as part of the « Investissements d’Avenir » program (Idex Grant Agreement No. ANR -11IDEX-0003-02 / Labex ECODEC No. ANR 11-LABEX-0047).