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Institutional investor heterogeneity and market price dynamics: Evidence from investment horizon and portfolio concentration

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  • Kim, Donghan
  • Kim, Hyun-Dong
  • Joe, Denis Yongmin
  • Oh, Ji Yeol Jimmy

Abstract

Institutions exhibit substantial heterogeneity in trading behavior. Although many studies consider their investment horizon or portfolio concentration in isolation, we propose a two-way investor classification that jointly accounts for both characteristics. Our conceptual framework provides an intuitive account of each institutional investor group’s trading and the ensuing impact on market price dynamics, offering fresh insights into seemingly mixed findings in the literature. Our results indicate that a short investment horizon and a high portfolio concentration are both proxies for an informational advantage. We also reveal substantial heterogeneity in the behavior of concentrated versus diversified institutions with similar investment horizons.

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  • Kim, Donghan & Kim, Hyun-Dong & Joe, Denis Yongmin & Oh, Ji Yeol Jimmy, 2021. "Institutional investor heterogeneity and market price dynamics: Evidence from investment horizon and portfolio concentration," Journal of Financial Markets, Elsevier, vol. 54(C).
    • Handle: RePEc:eee:finmar:v:54:y:2021:i:c:s1386418120300732
    DOI: 10.1016/j.finmar.2020.100604
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    1. Hou, Canran & Liu, Huan, 2023. "Institutional cross-ownership and stock price crash risk," Research in International Business and Finance, Elsevier, vol. 65(C).
    2. Wang, Jiarui & Liu, Shancun & Yang, Haijun, 2022. "Institutional investor’ proportions and inactive trading," International Review of Financial Analysis, Elsevier, vol. 82(C).

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    More about this item

    Keywords

    Price dynamics; Institutional investor; Investment horizon; Portfolio concentration; Investor sentiment;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other
    • G40 - Financial Economics - - Behavioral Finance - - - General

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