The Granular Nature of Large Institutional Investors

96 Pages Posted: 20 Jun 2015 Last revised: 12 Jun 2018

Itzhak Ben-David

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

Francesco A. Franzoni

USI Lugano; Swiss Finance Institute

Rabih Moussawi

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

John Sedunov

Villanova University - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: May 1, 2018

Abstract

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

Ben-David, Itzhak and Franzoni, Francesco A. and Moussawi, Rabih and Sedunov, John, The Granular Nature of Large Institutional Investors (May 1, 2018). Fisher College of Business Working Paper No. 2015-03-09; Swiss Finance Institute Research Paper No. 15-67; Charles A. Dice Center Working Paper No. 2015-09 . 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

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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