The Granular Nature of Large Institutional Investors
Charles A. Dice Center Working Paper No. 2015-09
96 Pages Posted: 20 Jun 2015 Last revised: 12 Jun 2018
Date Written: May 1, 2018
Large institutional investors own an increasing share of equity markets. The paper investigates whether this development has an impact on stock prices. We show that funds within the same family display higher correlation in flows and investment strategies. Thus, large institutions potentially impose greater liquidity demand on the stocks they trade. Accordingly, we find that ownership by large institutions leads to higher volatility and greater noise in prices. During market turmoil, the stocks owned by large institutions display larger price drops. The magnitude for the volatility effect reaches 16% of a standard deviation for the top 10 institutions in recent periods.
Keywords: Institutional investors, Concentration, Granularity, Fire Sales, Liquidity
JEL Classification: G01, G12, G23
Suggested Citation: Suggested Citation