Institutional Investment and Commonality in Liquidity: Evidence from Transaction Data

41 Pages Posted: 22 Dec 2013 Last revised: 30 Sep 2015

See all articles by Mahmoud Aymo

Mahmoud Aymo

Universidad Carlos III de Madrid

Javier Gil-Bazo

Universitat Pompeu Fabra; Barcelona Graduate School of Economics (Barcelona GSE)

Date Written: September 29, 2015

Abstract

This paper investigates the direct link between institutional investors' trading activity and comovement in stock liquidity using data on actual institutional investors' trades. We fi nd strong empirical evidence that stocks that are highly traded by institutions exhibit commonality in liquidity. This result appears to be the consequence of correlated trading, as pairs of stocks connected through common institutional trading covary more together. Using the mutual fund scandal of 2003, we nd some evidence of a causal link between institutional investors' trades and stock liquidity covariation.

Keywords: Liquidity; Commonality in liquidity; Institutional investors

JEL Classification: G10; G23

Suggested Citation

Aymo, Mahmoud and Gil-Bazo, Javier, Institutional Investment and Commonality in Liquidity: Evidence from Transaction Data (September 29, 2015). Available at SSRN: https://ssrn.com/abstract=2370475 or http://dx.doi.org/10.2139/ssrn.2370475

Mahmoud Aymo

Universidad Carlos III de Madrid ( email )

CL. de Madrid 126
Madrid, Madrid 28903
Spain

Javier Gil-Bazo (Contact Author)

Universitat Pompeu Fabra ( email )

Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain

Barcelona Graduate School of Economics (Barcelona GSE) ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain

Register to save articles to
your library

Register

Paper statistics

Downloads
86
rank
276,082
Abstract Views
457
PlumX Metrics