The Decline in Performance of Institutional Investors: Insights from Their Trade Counterparties
52 Pages Posted: 15 May 2018 Last revised: 6 Apr 2020
Date Written: March 31, 2020
Academics and practitioners have long anticipated a decline in the performance of institutional investors as their holdings reach the point where they are largely trading amongst themselves. We confirm that institutional investor performance has declined over time -- but it appears unrelated to the growth in institutional ownership. Institutional growth has been gradual, whereas the only discernible feature in the time-series of institutional performance is a structural shift (drop) in 2000. Reg FD appears to be a key factor. Specifically, there was an abrupt drop in institutions’ performance trading with both individuals and firms (issuance/repurchases) following Reg FD.
Keywords: Institutional Investors, Counterparties, Individual Investors, Performance, Reg FD
JEL Classification: G23, G14
Suggested Citation: Suggested Citation