NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Institutional Investors and Stock Market Volatility

Xavier Gabaix, Parameswaran Gopikrishnan, Vasiliki Plerou, H. Eugene Stanley

NBER Working Paper No. 11722
Issued in November 2005
NBER Program(s):   AP   EFG

We present a theory of excess stock market volatility, in which market movements are due to trades by very large institutional investors in relatively illiquid markets. Such trades generate significant spikes in returns and volume, even in the absence of important news about fundamentals. We derive the optimal trading behavior of these investors, which allows us to provide a unified explanation for apparently disconnected empirical regularities in returns, trading volume and investor size.

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Document Object Identifier (DOI): 10.3386/w11722

Published: Gabaix, Xavier, Parameswaran Gopikrishnan, Vasiliki Plerou and H. Eugene Stanley. "Institutional Investors And Stock Market Volatility," Quarterly Journal of Economics, 2006, v121(2,May), 461-504. citation courtesy of

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