76 Pages Posted: 2 Jan 2014 Last revised: 9 Jul 2019
Date Written: July 6, 2019
We show that institutional presence — measured as the equity holdings of money managers located in an urban area — is associated with higher stock liquidity and lower commonality in liquidity of nearby firms. These patterns become stronger during episodes of market stress. Our findings are not due to firm characteristics nor regional urban features, and are distinct from the effects of institutional ownership. We consider a causal interpretation by exploiting an exogenous shock to institutional presence. Our results suggest that incorporating institutional presence provides a more complete picture of how institutional investors shape stock liquidity.
Keywords: institutional investors, liquidity, commonality in liquidity
JEL Classification: G12, G14, G23
Suggested Citation: Suggested Citation