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Institutional investor heterogeneity and market price dynamics: Evidence from investment horizon and portfolio concentration

Donghan Kim, Hyun-Dong Kim, Denis Yongmin Joe and Ji Yeol Jimmy Oh

Journal of Financial Markets, 2021, vol. 54, issue C

Abstract: Institutions exhibit substantial heterogeneity in trading behavior. Although many studies consider their investment horizon or portfolio concentration in isolation, we propose a two-way investor classification that jointly accounts for both characteristics. Our conceptual framework provides an intuitive account of each institutional investor group’s trading and the ensuing impact on market price dynamics, offering fresh insights into seemingly mixed findings in the literature. Our results indicate that a short investment horizon and a high portfolio concentration are both proxies for an informational advantage. We also reveal substantial heterogeneity in the behavior of concentrated versus diversified institutions with similar investment horizons.

Keywords: Price dynamics; Institutional investor; Investment horizon; Portfolio concentration; Investor sentiment (search for similar items in EconPapers)
JEL-codes: G14 G23 G39 G40 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.finmar.2020.100604

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Journal of Financial Markets is currently edited by B. Lehmann, D. Seppi and A. Subrahmanyam

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