The Value of Active Investing: Can Active Institutional Investors Remove Excess Comovement of Stock Returns?

Pengfei Ye

Journal of Financial and Quantitative Analysis, 2012, vol. 47, issue 3, 667-688

Abstract: This study uses Cremers and Petajisto’s (2009) method to separate active institutional investors from passive ones and shows that active investors can alleviate the anomalous comovement of stock returns. Focusing on 2 events linked to the excess comovement anomaly, Standard & Poor’s 500 Index additions and stock splits, I find that if an event stock has more active institutional investors trading in the post-event period, the anomalous comovement effect disappears. In contrast, if an event stock experiences a massive exit of active investors, this anomaly persists. The exit of active institutional investors also results in a strong price synchronicity effect.

Date: 2012
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