The Granular Nature of Large Institutional Investors

Francesco Franzoni, Itzhak Ben-David, Rabih Moussawi and John Sedunov

No 13427, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Large institutional investors own an increasing share of equity markets in the U.S. 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 more fragility at times of crisis. Evidence from a natural experiment suggests a causal interpretation of this effect. 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.

Keywords: Institutional investors; Concentration; Granularity; Fire sales; Liquidity (search for similar items in EconPapers)
JEL-codes: G01 G12 G23 (search for similar items in EconPapers)
Date: 2019-01
New Economics Papers: this item is included in nep-cfn
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: The Granular Nature of Large Institutional Investors (2021)
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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