The Granular Nature of Large Institutional Investors

Itzhak Ben-David, Francesco A. Franzoni, Rabih Moussawi and John Sedunov
Additional contact information
Francesco A. Franzoni: University of Lugano; Swiss Finance Institute
Rabih Moussawi: Villanova University - Department of Finance; University of Pennsylvania - The Wharton School

No 15-67, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Over the last four decades, the concentration of institutional assets in equity markets has increased dramatically. We conjecture that large institutions are granular, that is, they cannot be reduced to a collection of smaller independent entities. Hence, the paper studies whether large institutional ownership has a significant impact on asset prices. We provide evidence of a causal effect of ownership by large institutions on the volatility of their stock holdings. As a potential channel for this effect, we show that large institutions generate higher price impact than smaller institutions. Their trades are larger and concentrated on fewer stocks than those of smaller firms. Moreover, the investor flows to units within the same family are more correlated than the flows to independent entities. Finally, the effect of large institutions on volatility is unlikely to be related to improved price discovery, because the stocks owned by large institutions exhibit stronger price inefficiency.

Keywords: Financial institutions; institutional investors; granularity (search for similar items in EconPapers)
JEL-codes: G01 G12 G23 (search for similar items in EconPapers)
Pages: 62 pages
Date: 2015-06, Revised 2016-04
New Economics Papers: this item is included in nep-hme
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Citations: View citations in EconPapers (20)

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http://ssrn.com/abstract=2620271 (application/pdf)

Related works:
Journal Article: The Granular Nature of Large Institutional Investors (2021)
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 (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1567

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