The Granular Nature of Large Institutional Investors

Itzhak Ben-David, Francesco Franzoni (), Rabih Moussawi () and John Sedunov ()
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Francesco Franzoni: Università della Svizzera Italiana, 6900 Lugano, Switzerland; Swiss Finance Institute, CH-1211 Geneva 4, Switzerland
Rabih Moussawi: Villanova School of Business, Villanova University, Villanova, Pennsylvania 19085; Wharton Research Data Services, Philadelphia, Pennsylvania 19104
John Sedunov: Villanova School of Business, Villanova University, Villanova, Pennsylvania 19085

Management Science, 2021, vol. 67, issue 11, 6629-6659

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.

Keywords: institutional investors; concentration; granularity; fire sales; liquidity; price impact; flows; nonfundamental demand (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (14)

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http://dx.doi.org/10.1287/mnsc.2020.3808 (application/pdf)

Related works:
Working Paper: The Granular Nature of Large Institutional Investors (2019)
Working Paper: The Granular Nature of Large Institutional Investors (2016)
Working Paper: The Granular Nature of Large Institutional Investors (2016)
Working Paper: The Granular Nature of Large Institutional Investors (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:67:y:2021:i:11:p:6629-6659

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