Institutional Investors and the Informational Efficiency of Prices

By Ekkehart Boehmer, Eric K. Kelley. 2009

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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. The Author 2009. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oxfordjournals.org., Oxford University Press.

Subfields: Accounting, Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/cbd78f1d910476256de2001d0da526bdee330683

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Citations in the corpus

Corporate Environmental Policy and Shareholder Value: Following the Smart Money (2017, neutral): “, Allen, Bernardo, and Welch (2000), Boehmer and Kelley (2009), Carleton, Nelson, and Weisbach (1998), Gillan and Starks (2000), Grinstein and Michaely (2005), Hartzell and Starks (2003), McConnell and Servaes (1990), Shleifer and Vishny (1986), and Smith (1996)).”
Do Market Efficiency Measures Yield Correct Inferences? A Comparison of Developed and Emerging Markets (2010, neutral): “5 For example, Chordia, Roll, and Subrahmanyam (2008) and Boehmer and Kelley (2009) use variance ratios in the U.S. to measure aspects of short-term efficiency; Hou and Moskowitz (2005) use the delay measure.”
The Good News in Short Interest (2010, background): “For example, short interest, trading volume, and institutional holdings, a proxy for the supply of lendable shares, increased markedly (see our Fig. 1 and Boehmer and Kelley, 2009 ).”
Are Institutions Informed About News (2015, background): “Sias and Starks (1997) and Boehmer and Kelley (2009) show that higher institutional holdings are associated with more efficient pricing.”
Short Selling and the Price Discovery Process (2013, methodology): “Second, Boehmer and Kelley (2009) find that institutional investors contribute to greater informational efficiency. We control for institutional holdings so we can focus on the marginal effect of shorting over and above the effect of institutional holdings. As in Boehmer and Kelley (2009), we use la”
International Evidence on Algorithmic Trading (2015, neutral): “Brogaard (2010, 2011a, 2011b) uses the 2008-2009 Nasdaq-selected data on 26 HFTs and shows ambiguous effects on volatility, but improvements in liquidity. Based on HFT activity inferred from millisecond-level responses, Hasbrouck and Saar (2011) find improvements in volatility, spreads, and depth wh”
The Long-Lasting Momentum in Weekly Returns (2008, background): “In addition, the fact that the trading activity of institutions is greater in the stocks where institutions hold more shares (as shown by Boehmer and Kelley (2005)) provides an interesting possibility: the greater short-run reversal in large, high-coverage, and high-institutional-ownership stocks…”
Endogeneity in CEO power: A survey and experiment (2016, neutral): “Boehmer and Kelley (2009) used this method to account for the persistency in stock pricing error.”