Institutional Trading and Asset Pricing

57 Pages Posted: 29 Nov 2014 Last revised: 24 Apr 2018

See all articles by Bart Frijns

Bart Frijns

Auckland University of Technology - Faculty of Business & Law

Thanh D. Huynh

Monash University - Department of Banking and Finance

Alireza Tourani-Rad

Auckland University of Technology - Faculty of Business & Law

P. Joakim Westerholm

University of Sydney Business School; Financial Research Network (FIRN)

Date Written: February 2, 2017

Abstract

This paper examines whether the trading activity of different investor types, institutional versus retail, can affect the relation between beta and average returns. We find that the beta-return relation is strong and positive on days with high institutional trading activity, and negative and significant on low institutional trading days. Our findings are robust and not driven by recently documented effects such as macroeconomic news and leverage constraints, among others. The evidence is consistent with the hypothesis that the preferences and characteristics of various investor types, which are revealed through their trading activity, cause the slope of the Security Market Line to change.

Keywords: intermediary asset pricing, institutional trading, investor preferences, CAPM

Suggested Citation

Frijns, Bart and Huynh, Thanh Duc and Tourani-Rad, Alireza and Westerholm, P. Joakim, Institutional Trading and Asset Pricing (February 2, 2017). Journal of Banking and Finance, forthcoming. Available at SSRN: https://ssrn.com/abstract=2531823 or http://dx.doi.org/10.2139/ssrn.2531823

Bart Frijns

Auckland University of Technology - Faculty of Business & Law ( email )

3 Wakefield Street
Private Bag 92006
Auckland Central 1020
New Zealand

Thanh Duc Huynh (Contact Author)

Monash University - Department of Banking and Finance ( email )

Melbourne
Australia

Alireza Tourani-Rad

Auckland University of Technology - Faculty of Business & Law ( email )

3 Wakefield Street
Private Bag 92006
Auckland Central 1020
New Zealand

P. Joakim Westerholm

University of Sydney Business School ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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