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Institutional Investors and Stock Liquidity: Evidence from Indian Stock Market

Author

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  • Sudhakara Reddy Syamala

    (Sudhakara Reddy Syamala (Corresponding author) is Assistant Professor, F-107, Department of Finance, IBS Hyderabad, Dontanapally, Shankerpally Road, Hyderabad-501203, India. E-mail: srsudhakar@ibsindia.org)

  • Yogesh Chauhan

    (Yogesh Chauhan is Assistant Professor, F-007, Department of Finance, IBS Hyderabad, Dontanapally, Shankerpally Road, Hyderabad-501203, India. E-mail: yogeshkumar@ibsindia.org)

  • Kavita Wadhwa

    (Kavita Wadhwa is Assistant Professor, F-009, Department of Finance, IBS Hyderabad, Dontanapally, Shankerpally Road, Hyderabad-501203, India. E-mail: kwadhwa@ibsindia.org)

Abstract

The main aim of this article is to examine the relation between institutional ownership and stock liquidity. Using a large sample of Indian firm data for the period 2001–2012, we estimate two liquidity measures, Amihud illiquidity and HL-spread. We find that institutional ownership is negatively related to the stock liquidity. We also find that the negative institutional ownership–stock liquidity relation is mostly driven by foreign institutional investors (FIIs) and Bank ownership. Conversely, retail ownership is positively related to the stock liquidity. Importantly, we find that institutional investors are more likely to hold liquid stocks. These findings are consistent with the hypothesis that the level of institutional ownership proxies for informed investors, while they trade liquid stock to reduce price impact cost.

Suggested Citation

  • Sudhakara Reddy Syamala & Yogesh Chauhan & Kavita Wadhwa, 2014. "Institutional Investors and Stock Liquidity: Evidence from Indian Stock Market," Global Business Review, International Management Institute, vol. 15(3), pages 461-476, September.
    • Handle: RePEc:sae:globus:v:15:y:2014:i:3:p:461-476
    DOI: 10.1177/0972150914535133
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    References listed on IDEAS

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    1. Muhammad Sadil Ali & Shujahat Haider Hashmi, 2018. "Impact of Institutional Ownership on Stock Liquidity: Evidence from Karachi Stock Exchange, Pakistan," Global Business Review, International Management Institute, vol. 19(4), pages 939-951, August.
    2. Majd Iskandrani & Asma'a Al-Amarneh, 2017. "The Effect of Ownership Composition on Stock's Liquidity: Evidence from Weak Corporate Governance Setting," International Journal of Economics and Financial Issues, Econjournals, vol. 7(3), pages 676-683.

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