NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

John Sedunov

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NBER Working Papers and Publications

May 2016The Granular Nature of Large Institutional Investors
with Itzhak Ben-David, Francesco Franzoni, Rabih Moussawi: w22247
Large institutional investors own an increasing share of equity markets. We conjecture that a financial market in which large institutions dominate operates differently than a market populated by smaller independent investors. To support this view, we show that funds within the same family display higher correlation in flows and investment strategies. As a result, large institutions are likely to impose greater liquidity demand on the stocks they trade. Accordingly, we find that ownership and trades by large institutions lead to higher volatility and to increased return and liquidity comovement. Moreover, during times of market turmoil, stocks with higher ownership by large institutions display significantly larger price drops.
 
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