The Price Impact of Institutional Trading

43 Pages Posted: 19 Sep 2001

See all articles by Richard W. Sias

Richard W. Sias

University of Arizona - Department of Finance

Laura T. Starks

University of Texas at Austin - Department of Finance

Sheridan Titman

University of Texas at Austin - Department of Finance; National Bureau of Economic Research (NBER)

Date Written: August 25, 2001

Abstract

Recent studies document a strong positive relation between quarterly and annual changes in institutional ownership and returns measured over the same period. The source of this positive correlation could arise from institutional investors' intra-period positive feedback trading, institutions forecasting intra-period price changes, or from price pressure caused by institutional trades. Price pressure can in turn arise for inventory/liquidity reasons, or because market participants infer information from institutional trades. Our results suggest that the price impact of institutional trading is primarily responsible for the documented positive covariance between quarterly changes in institutional ownership and quarterly returns. Moreover, our analyses suggest this price pressure results from information revealed through institutional trading.

Suggested Citation

Sias, Richard W. and Starks, Laura T. and Titman, Sheridan, The Price Impact of Institutional Trading (August 25, 2001). Available at SSRN: https://ssrn.com/abstract=283779 or http://dx.doi.org/10.2139/ssrn.283779

Richard W. Sias (Contact Author)

University of Arizona - Department of Finance ( email )

McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States

Laura T. Starks

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-471-5899 (Phone)
512-471-5073 (Fax)

Sheridan Titman

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-232-2787 (Phone)
512-471-5073 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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