The Granular Nature of Large Institutional Investors

86 Pages Posted: 16 May 2016

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: May 2016

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.

Suggested Citation

Ben-David, Itzhak and Franzoni, Francesco A. and Moussawi, Rabih and Sedunov, John, The Granular Nature of Large Institutional Investors (May 2016). NBER Working Paper No. w22247. Available at SSRN: https://ssrn.com/abstract=2780257

Itzhak Ben-David (Contact Author)

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

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

National Bureau of Economic Research (NBER) ( email )

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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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