Where Do Institutional Investors Seek Shelter when Disaster Strikes? Evidence from COVID-19

Simon Glossner, Pedro Matos, Stefano Ramelli and Alexander Wagner
Additional contact information
Simon Glossner: University of Virginia - Darden School of Business
Pedro Matos: University of Virginia - Darden School of Business; European Corporate Governance Institute (ECGI)
Stefano Ramelli: University of Zurich - Department of Banking and Finance

No 20-56, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Institutional investors played a crucial role in the COVID-19 market crash. U.S. stocks with higher institutional ownership -- in particular, those held more by active, short-term, and domestic institutions -- performed worse. An analysis of changes in holdings through the first quarter of 2020 reveals that mutual funds, investment advisors, and pension funds favored stocks with strong financials (low debt and high cash), whereas hedge funds sold stocks indiscriminately. None of these institutional investor groups appear to have actively tilted their portfolios toward firms with better environmental and social performance. Data from a large discount brokerage indicate that retail investors acted as liquidity providers. Overall, the results suggest that when a tail risk realizes, institutional investors express a preference for "hard" measures of firm resilience.

Keywords: Cash holdings; Coronavirus; Corporate debt; COVID-19; ESG; Event study; Financial crisis; Institutional ownership; Leverage; Pandemic; Retail investors; Robinhood; SARS-CoV-2; Tail risk (search for similar items in EconPapers)
JEL-codes: F14 G01 G12 G14 G32 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2020-07
New Economics Papers: this item is included in nep-cfn, nep-env and nep-rmg
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Citations: View citations in EconPapers (23)

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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2056

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