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, Ekkehart Boehmer Lundquist College of Business, University of Oregon and Mays Business School, Texas A&M University Send correspondence to Ekkehart Boehmer, Mays Business School, Texas A&M University, College Station, TX 77843-4218; telephone: 979-845-1224; Fax: 979-845-3884 . E-mail: eboehmer@mays.tamu.edu. Search for other works by this author on: Oxford Academic Eric K. Kelley Eller College of Management, University of Arizona Search for other works by this author on: Oxford Academic
The Review of Financial Studies, Volume 22, Issue 9, September 2009, Pages 3563–3594, https://doi.org/10.1093/rfs/hhp028
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17 April 2009
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Ekkehart Boehmer, Eric K. Kelley, Institutional Investors and the Informational Efficiency of Prices, The Review of Financial Studies, Volume 22, Issue 9, September 2009, Pages 3563–3594, https://doi.org/10.1093/rfs/hhp028
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Abstract
Using a broad panel of NYSE-listed stocks between 1983 and 2004, we study the relation between institutional shareholdings and the relative informational efficiency of prices, measured as deviations from a random walk. Stocks with greater institutional ownership are priced more efficiently, and we show that variation in liquidity does not drive this result. One mechanism through which prices become more efficient is institutional trading activity, even when institutions trade passively. But efficiency is also directly related to institutional holdings, even after controlling for institutional trading, analyst coverage, short selling, variation in liquidity, and firm characteristics.
© Oxford University Press 2009
JEL
G12 - Asset Pricing; Trading volume; Bond Interest Rates G14 - Information and Market Efficiency; Event Studies; Insider Trading
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I'm Ekkehart Boehmer, a researcher with expertise in financial studies, particularly focused on the informational efficiency of prices in financial markets. My knowledge extends to the nuances of institutional investors' impact on stock prices, drawing from a comprehensive study published in The Review of Financial Studies, Volume 22, Issue 9, in September 2009.
In the article "Institutional Investors and the Informational Efficiency of Prices," co-authored with Eric K. Kelley, we explored the relationship between institutional shareholdings and the relative informational efficiency of prices in the context of NYSE-listed stocks between 1983 and 2004. The key findings of our research shed light on the connection between institutional ownership and price efficiency, measured by deviations from a random walk.
One noteworthy result was that stocks with greater institutional ownership exhibited higher pricing efficiency. Importantly, we demonstrated that this phenomenon couldn't be solely attributed to variations in liquidity. Our research delved into the mechanisms driving enhanced price efficiency, revealing that institutional trading activity played a pivotal role, even in passive trading scenarios.
What sets our study apart is the identification of direct links between pricing efficiency and institutional holdings, even after controlling for factors such as institutional trading, analyst coverage, short selling, liquidity variations, and firm characteristics. This robust methodology allowed us to make a substantial contribution to the understanding of how institutional investors influence the informational efficiency of stock prices.
The article is a valuable resource for those interested in asset pricing, trading volume, bond interest rates (JEL G12), as well as information and market efficiency, event studies, and insider trading (JEL G14). It provides a comprehensive analysis of the interplay between institutional investors and price efficiency, offering insights that are pertinent to academics, practitioners, and anyone keen on gaining a deeper understanding of financial markets.
For those interested in accessing the full article, it's available in The Review of Financial Studies, Volume 22, Issue 9, published on April 17, 2009, with the DOI: 10.1093/rfs/hhp028. This research has received attention, as evidenced by its citation metrics, and continues to be a relevant reference in the field of financial studies.
