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The Granular Nature of Large Institutional Investors

86 Pages Posted: 20 Jun 2015 Last revised: 13 Dec 2017

Itzhak Ben-David

Ohio State University - Fisher College of Business, Finance Department; 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: November 2017

Abstract

Large institutional investors own an increasing share of equity markets. We conjecture that a financial market in which large institutions dominate operates differently than a market populated by smaller independent investors. To support this view, we show that funds within the same family display higher correlation in flows and investment strategies. As a result, large institutions are likely to impose greater liquidity demand on the stocks they trade. Accordingly, we find that ownership and trades by large institutions lead to higher volatility and to increased return and liquidity comovement. Moreover, during times of market turmoil, stocks with higher ownership by large institutions display significantly larger price drops.

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 (November 2017). 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 - Fisher College of Business, Finance Department ( 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, 1003
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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