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The Granular Nature of Large Institutional Investors

Author

Listed:
  • Ben-David, Itzhak

    (OH State University)

  • Franzoni, Francesco A.

    (University of Lugano and Swiss Finance Institute)

  • Moussawi, Rabih

    (University of PA)

  • Sedunov, John, III

    (Villanova University)

Abstract

Over last 35 years institutional ownership became concentrated at unprecedented levels; e.g., the stock holdings by the largest ten asset management firms quadrupled from 5.6% to 23.1%. Due to their sheer size, institution-level shocks cannot be diversified away and can spill over to the underlying securities. We document that stock ownership by the largest institutional investors leads to an increase in the volatility of the assets that they hold. Furthermore, stocks held by the largest institutional investors exhibit patterns of price inefficiency. We show that these effects are triggered by institution-level idiosyncratic news and channeled through large trades.

Suggested Citation

  • Ben-David, Itzhak & Franzoni, Francesco A. & Moussawi, Rabih & Sedunov, John, III, 2015. "The Granular Nature of Large Institutional Investors," Working Paper Series 2015-09, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    • Handle: RePEc:ecl:ohidic:2015-09
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    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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