Who moves stock prices? Monthly evidence

Existing evidence using US data shows a simultaneous covariability between a stock's price and quarterly flows into and out of the stock by institutional investors. In this paper we use date on monthly changes in holdings by all investor groups at the Oslo Stock Exchange to shown that the quarterly effects in US data is concentrated within a month. We see a clear positive relation between monthly net flows into a stock by institutions and foreigners and the stock's return. We find no evidence of any effects the next month, providing evidence against the hypothesis that the US quarterly results are due to within-quarter feedback. Such feedback effects must be of less than one month duration. We show that offsetting net inflows by mutual funds and foreigners are net outflows by individual and nonfinancial investors. The interesting question is which of these groups are active in pushing prices. While we can not empirically distinguish which of the various investor groups is reacting, we argue that the most reasonable story is that institutions and foreign investors are the active parties, since the prices move in the direction of these groups' trades. The lack of next-month feedback (price reversals) is consistent with prices moving toward fundamentals.