Heterogeneity of Institutional Ownership and Stock Price Delay

Abstract

This study examines how heterogeneous institutional ownership affects stock price delay. Our result shows higher total institutional ownership and the number of institutions reduce price delay. We further classify institution types from stock’s perspective (top 5 and year-long) and institution’s perspective (low churn rate, high churn rate, concentrated, skilled, and independent). After controlling the total institutional ownership, investor attention, and firm characteristic variables, we find ownership from top 5 and low churn rate, and ownership increase from independent institutions help lower price delay while high churn rate, concentrated, and skilled institutional ownerships increase the delay. Moreover, the price delay components related to year-long, high churn rate, concentrated, and skilled institutions are positively associated with expected stock returns. Our results suggest while top 5 and low churn rate institutions actively monitor firms and reduce price delay, high churn rate, concentrated, and skilled institutions may utilize their information advantage and hinder uninformed investors’ trading, resulting in delayed price adjustment to information.

Keywords: institutional ownership, stock price delay, market frictions, information asymmetry, information efficiency

JEL Classification: G12, G14, G20