Institutional Investors and the Comovement of Equity Prices

Download or read book Institutional Investors and the Comovement of Equity Prices written by Christo A. Pirinsky and published by . This book was released on 2004 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: We find that institutional investors contribute significantly to both long-term levels and short-term changes of stock price comovement with the market. This result is only partly explained by institutional investors incorporating more systematic information into security prices than individual investors. Next, we show that institutions increase the systematic movement of a stock by increasing its comovement with other stocks of high-institutional ownership, while decreasing its comovement with stocks of low-institutional ownership. The degree of stock price comovement is also increasing in the magnitude of institutional trading and appears related to particular institutional trading activities, such as style investing. Our findings have implications for current theories on comovement and financial contagion.