Article2001

Institutional Investors and Equity Prices

1,646 citations0/0 files storedThe Quarterly Journal of Economics

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Financial Markets and Investment Strategies Corporate Finance and Governance Financial Analysis and Corporate Governance

Abstract

This paper analyzes institutional investors' demand for stock characteristics and the implications of this demand for stock prices and returns. We find that "large" institutional investors nearly doubled their share of the stock market from 1980 to 1996. Overall, this compositional shift tends to increase demand for the stock of large companies and decrease demand for the stock of small companies. The compositional shift can, by itself, account for a nearly 50 percent increase in the price oflarge-company stock relative to small-company stock and can explain part of the disappearance of the historical small-company stock premium.

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References

1973Risk, Return, and Equilibrium: Empirical Tests 1996Multifactor Explanations of Asset Pricing Anomalies 1990Noise Trader Risk in Financial Markets 1995The Limits of Arbitrage 1993The journal of financial economics 1999Mutual Fund Herding and the Impact on Stock Prices 1999Herding and Feedback Trading by Institutional and Individual Investors 1997Myth or Reality? The Long-Run Underperformance of Initial Public Offerings: Evidence from Venture and Nonventure Capital-Backed Companies

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