The Granular Nature of Large Institutional Investors

Management Science, Forthcoming

Charles A. Dice Center Working Paper No. 2015-09

Fisher College of Business Working Paper No. 2015-03-09

Swiss Finance Institute Research Paper No. 15-67

97 Pages Posted: 20 Jun 2015 Last revised: 8 Jul 2020

See all articles by Itzhak Ben-David

Itzhak Ben-David

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER)

Francesco A. Franzoni

USI Lugano; Swiss Finance Institute; Centre for Economic Policy Research (CEPR)

Rabih Moussawi

Villanova University - Department of Finance; University of Pennsylvania - The Wharton School

John Sedunov

Villanova University - Department of Finance

Multiple version iconThere are 3 versions of this paper

Date Written: June 30, 2020

Abstract

Large institutional investors own an increasing share of equity markets in the U.S. The implications of this development for financial markets are still unclear. The paper presents novel empirical evidence that ownership by large institutions predicts higher volatility and greater noise in stock prices, as well as greater fragility at times of crisis. When studying the channel, we find that large institutional investors exhibit traits of granularity, i.e., sub-units within a firm display correlated behavior, which reduces diversification of idiosyncratic shocks. Thus, large institutions trade larger volumes and induce greater price impact.

Keywords: Institutional investors, Concentration, Granularity, Fire Sales, Liquidity

JEL Classification: G01, G12, G23

Suggested Citation

Ben-David, Itzhak and Franzoni, Francesco A. and Moussawi, Rabih and Sedunov, John, The Granular Nature of Large Institutional Investors (June 30, 2020). Management Science, Forthcoming, Charles A. Dice Center Working Paper No. 2015-09, Fisher College of Business Working Paper No. 2015-03-09, Swiss Finance Institute Research Paper No. 15-67, Available at SSRN: https://ssrn.com/abstract=2620271 or http://dx.doi.org/10.2139/ssrn.2620271

Itzhak Ben-David (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Fisher 700D
Columbus, OH 43210-1144
United States
773 988 1353 (Phone)

HOME PAGE: http://fisher.osu.edu/fin/faculty/Ben-David/index.htm

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://fisher.osu.edu/fin/faculty/Ben-David/

Francesco A. Franzoni

USI Lugano ( email )

Via G. Buffi 13
Lugano, 6904
Switzerland

Swiss Finance Institute

Switzerland

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Rabih Moussawi

Villanova University - Department of Finance ( email )

800 E Lancaster Ave
Bartley Hall, 2051
Villanova, PA 19085
United States

HOME PAGE: http://www.homepage.villanova.edu/rabih.moussawi

University of Pennsylvania - The Wharton School ( email )

United States

John Sedunov

Villanova University - Department of Finance ( email )

800 Lancaster Ave.
Villanova, PA 19085
United States
610-519-4374 (Phone)

HOME PAGE: http://homepage.villanova.edu/john.sedunov/

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