Is Trading Behavior Stable Across Contexts? Evidence from Style and Multi-Style Investors

We investigate whether investors tend to form expectations about different categories of assets in a consistent, similar fashion, or whether an investor would apply different models for forming expectations depending on the classification or characteristics of the assets. We investigate the trading behavior of investors who specialize in value assets, investors who specialize in growth assets, and investors who trade both value and growth. We find important systematic differences in trading tendencies. Growth investors tend to follow a momentum buying and contrarian selling strategy and tend to rely on short term return signals while value investors follow a contrarian buying and momentum selling strategy and tend to rely on longer-term return signals. Surprisingly, multi-style investors, those who trade both value and growth, use different strategies depending on the style of asset being traded. When trading growth, the multi-style investor uses a momentum buy and contrarian sell strategy. However, when trading value, the multi-style investor uses a contrarian buy and momentum sell strategy. Hence, the multi-style investor trades like both the value and the growth style-investors. Investors adopt different trading strategies depending on the characteristics of asset being traded