The Decline in Performance of Institutional Investors

54 Pages Posted: 15 May 2018 Last revised: 24 May 2022

See all articles by Ozgur Ince

Ozgur Ince

University of South Carolina - Moore School of Business

Gregory B. Kadlec

Virginia Polytechnic Institute & State University - Pamplin College of Business

Date Written: May 23, 2022

Abstract

Institutions’ aggregate performance has declined over time (Lewellen 2011). Conventional wisdom suggests this is because institutions are increasingly trading with each other. Our analysis of the time series of institutional trade performance rejects this conventional wisdom. The increase in institutional holdings is gradual whereas the decline in performance is abrupt (structural shift in 2000). Moreover, the decline in performance is due to a decline in profitability of trades with non-institutional counterparties rather than volume of trades with non-institutional counterparties. Our evidence suggests events around the year 2000 (decimalization, Reg-FD, listings) impacted the relative informedness of institutions, retail investors, and firms.

Keywords: Institutional Investors, Counterparties, Individual Investors, Performance, Reg FD

JEL Classification: G23, G14

Suggested Citation

Ince, Ozgur S. and Kadlec, Gregory B., The Decline in Performance of Institutional Investors (May 23, 2022). Available at SSRN: https://ssrn.com/abstract=3172301 or http://dx.doi.org/10.2139/ssrn.3172301

Ozgur S. Ince (Contact Author)

University of South Carolina - Moore School of Business ( email )

1014 Greene Street
Columbia, SC 29208
United States
(803) 777-4905 (Phone)

Gregory B. Kadlec

Virginia Polytechnic Institute & State University - Pamplin College of Business ( email )

1016 Pamplin Hall
Blacksburg, VA 24061
United States
540-231-4316 (Phone)

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