Big Fish in a Small Pond: Institutional Trading of Penny Stocks

The Quarterly Journal of Finance, Forthcoming

38 Pages Posted: 13 Jan 2020

See all articles by Wei Huang

Wei Huang

College of Saint Benedict (CSB) and Saint John's University (SJU)

George J. Jiang

Washington State University

Date Written: December 02, 2019

Abstract

There has been a steady increase in institutional ownership of penny stocks over the past decades. Nevertheless, we show that penny stocks bought by institutional investors significantly underperform other penny stocks in subsequent four quarters. This poor performance is mainly driven by quasi-indexers, i.e., institutions with passive and widely diversified investment strategies. In comparison, dedicated institutions, i.e., those with low turnover but large average investments in portfolio firms and a commitment to “relationship investing”, have marginally significant ability in trading penny stocks.

Keywords: Penny Stocks, Institutional Trading, Price Impact, Abnormal Stock Returns, Short Interest

JEL Classification: G10, G12, G14, G23

Suggested Citation

Huang, Wei and Jiang, George, Big Fish in a Small Pond: Institutional Trading of Penny Stocks (December 02, 2019). The Quarterly Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3508926

Wei Huang (Contact Author)

College of Saint Benedict (CSB) and Saint John's University (SJU) ( email )

P.O. Box 2000
St. Joseph and Collegeville, MN 56321
United States

George Jiang

Washington State University ( email )

Department of Finance and Management Science
Carson College of Business
Pullman, WA 99-4746164
United States
509-3354474 (Phone)

HOME PAGE: http://directory.business.wsu.edu/bio.html?username=george.jiang

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