The Granular Nature of Large Institutional Investors

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

No 22247, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Large institutional investors own an increasing share of the 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 greater fragility in times of crisis. 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. Thus, large institutions trade larger volumes and induce greater price impact.

JEL-codes: G01 G12 G23 (search for similar items in EconPapers)
Date: 2016-05
Note: AP CF
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Citations: View citations in EconPapers (9)

Published as Itzhak Ben-David & Francesco Franzoni & Rabih Moussawi & John Sedunov, 2021. "The Granular Nature of Large Institutional Investors," Management Science, vol 67(11), pages 6629-6659.

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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 (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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