The role of institutional investors and individual investors in financial markets: Evidence from closed-end funds

Emily J. Huang

Review of Financial Economics, 2015, vol. 26, issue C, 1-11

Abstract: I use closed-end funds as a unique research tool to explore whether institutional investors are a stabilizing or a destabilizing force in financial markets. If institutional investors stabilize the market by trading against mispricing, then they should purchase closed-end funds selling at a wide discount and sell funds selling at a large premium. Consistent with the market-stabilizer hypothesis, I document that wide-discount funds experience a higher subsequent institutional demand than premium funds do. Moreover, my findings that an increase in institutional ownership forecasts a decrease in the volatility of discount returns support the proposition that institutional trading reduces noise trader risk. In sum, the results suggest that institutional investors play a price-stabilizing role in financial markets.

Keywords: Institutional investors; Individual investors; Closed-end funds; Noise trader risk (search for similar items in EconPapers)
JEL-codes: G12 G15 G23 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1058330015000269
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:revfin:v:26:y:2015:i:c:p:1-11

DOI: 10.1016/j.rfe.2015.05.001

Access Statistics for this article

Review of Financial Economics is currently edited by T. K. Mukherjee and G. Whitney

More articles in Review of Financial Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().