Institutional Counterparties and Performance
44 Pages Posted: 15 May 2018
Date Written: May 2, 2018
We examine the counterparties to institutional trades and their relation to institutional trade performance over time. We find that institutional trade performance has declined since 1980, but the reasons go far beyond the shrinking pool of retail investors as counterparties. Our evidence suggests that a primary factor in the decline in institutional performance is their loss of privileged access to information (Reg FD). Another key factor is their declining performance in transactions with firms (i.e., equity offerings and repurchases), an important counterparty that is typically overlooked in studies of institutional trading. Institutions with passive strategies appear to be especially vulnerable to underperforming trades with firms.
Keywords: Institutional Investors, Counterparties, Individual Investors, Performance, Reg FD
JEL Classification: G23, G14
Suggested Citation: Suggested Citation