The Trading of Institutional Investors: Theory and Evidence

Journal of Applied Finance, Vol. 12, No. 1, Spring/Summer

Posted: 6 Jun 2002

See all articles by Jennifer S. Conrad

Jennifer S. Conrad

University of North Carolina Kenan-Flagler Business School

Kevin M. Johnson

Aronson+Johnson+Ortiz

Sunil Wahal

Arizona State University (ASU) - Finance Department

Abstract

The evidence on institutional investors' trading behavior during the 1990s is broadly consistent with those investors seeking to reduce execution costs. Specifically, institutional investors break up large orders into smaller trades; the nature of the break-up depends in part on characteristics of the order and the liquidity of the market for the security. We extend the analysis of execution costs to a period in which the market is declining sharply and the number and type of trading platforms were increasing substantially. Average execution costs and execution strategy in the sample do not differ substantially from those observed in earlier periods. Our conclusion is that cross-sectional differences in trading ability are much more important than the external market environment in the determination of execution costs. We speculate that the importance of this ability will increase as the complexity of trading mechanisms increases.

JEL Classification: G100, G200

Suggested Citation

Conrad, Jennifer S. and Johnson, Kevin M. and Wahal, Sunil, The Trading of Institutional Investors: Theory and Evidence. Journal of Applied Finance, Vol. 12, No. 1, Spring/Summer, Available at SSRN: https://ssrn.com/abstract=306748

Jennifer S. Conrad (Contact Author)

University of North Carolina Kenan-Flagler Business School ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States

Kevin M. Johnson

Aronson+Johnson+Ortiz ( email )

230 South Broad Street
20th Floor
Philadelphia, PA 19102
United States
215-546-7500 (Phone)

Sunil Wahal

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

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