Opinion divergence among professional investment managers

We find that opinion divergence among professional investment managers is commonplace, using a large sample of transaction-level institutional trading data. When managers trade together, future returns are similar regardless if they are all buying or selling, inconsistent with the notion that professional investment managers possess stock picking ability or private information that is of investment value. However, when managers trade against each other, subsequent returns are low, especially for stocks that are difficult to short. This U-shaped disagreement-return relationship is consistent with Miller's (1977) hypothesis that, in the presence of short-sale constraints, opinion divergence can cause an upward bias in prices.