Institutional Investors and Equity Prices

Gompers, Paul A.; Metrick, Andrew

doi:10.2139/ssrn.93660

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Institutional Investors and Equity Prices

Quarterly Journal of Economics, Vol. 116, No. 1, pp. 229-259, February 2001

42 Pages Posted: 1 Jun 1998

See all articles by Paul A. Gompers

Paul A. Gompers

Harvard Business School - Finance Unit; Harvard University - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Andrew Metrick

Yale School of Management; National Bureau of Economic Research (NBER); Yale University - Yale Program on Financial Stability

There are 2 versions of this paper

Abstract

This paper analyzes institutional investors' demand for stock characteristics and the implications of this demand for stock prices and returns. We find that "large" institutional investors nearly doubled their share of the stock market from 1980 to 1996. Overall, this compositional shift tends to increase demand for the stock of large companies and decrease demand for the stock of small companies. The compositional shift can, by itself, account for a nearly 50 percent increase in the price of large-company stock relative to small-company stock and can explain part of the disappearance of the historical small-company stock premium.

JEL Classification: G20, G11, G32

Suggested Citation: Suggested Citation

Gompers, Paul A. and Metrick, Andrew, Institutional Investors and Equity Prices. Quarterly Journal of Economics, Vol. 116, No. 1, pp. 229-259, February 2001, Available at SSRN: https://ssrn.com/abstract=93660 or http://dx.doi.org/10.2139/ssrn.93660