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- Title
The Granular Nature of Large Institutional Investors.
- Authors
Ben-David, Itzhak; Franzoni, Francesco; Moussawi, Rabih; Sedunov, John
- Abstract
Large institutional investors own an increasing share of the equity markets in the United States. The implications of this development for financial markets are still unclear. The paper presents novel empirical evidence that ownership by large institutions predicts higher volatility and greater noise in stock prices as well as greater fragility in times of crisis. When studying the channel, we find that large institutional investors exhibit traits of granularity (i.e., subunits within a firm display correlated behavior), which reduces diversification of idiosyncratic shocks. Thus, large institutions trade larger volumes and induce greater price impact. This paper was accepted by David Simchi-Levi, finance.
- Subjects
UNITED States; INSTITUTIONAL investors; STOCK prices; STOCK exchanges; FINANCIAL markets; MARKET share
- Publication
Management Science, 2021, Vol 67, Issue 11, p6629
- ISSN
0025-1909
- Publication type
Article
- DOI
10.1287/mnsc.2020.3808