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Asset Prices and Institutional Investors

The American economic review, 2013-08, Vol.103 (5), p.1728-1758 [Peer Reviewed Journal]

Copyright© 2013 American Economic Association ;Copyright American Economic Association Aug 2013 ;ISSN: 0002-8282 ;EISSN: 1944-7981 ;DOI: 10.1257/aer.103.5.1728 ;CODEN: AENRAA

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Title:
Asset Prices and Institutional Investors
Author: Basak, Suleyman ; Pavlova, Anna
Subjects: Asset management ; Asset pricing ; Cash flow ; Consumer economics ; Correlation ; Economic indices ; Economic investment ; Economic theory ; Financial portfolios ; Hedge funds ; Incentives ; Institutional economics ; Institutional investments ; Investment analysis ; Investors ; Personal finance ; Prices ; Retailing industry ; Securities markets ; Stock exchange ; Stock exchanges ; Stock market indices ; Stock prices ; Studies
Is Part Of: The American economic review, 2013-08, Vol.103 (5), p.1728-1758
Description: We consider an economy populated by institutional investors alongside standard retail investors. Institutions care about their performance relative to a certain index. Our framework is tractable, admitting exact closed-form expressions, and produces the following analytical results. We find that institutions tilt their portfolios towards stocks that compose their benchmark index. The resulting price pressure boosts index stocks. By demanding more risky stocks than retail investors, institutions amplify the index stock volatilities and aggregate stock market volatility and give rise to countercyclical Sharpe ratios. Trades by institutions induce excess correlations among stocks that belong to their benchmark, generating an asset-class effect.
Publisher: Nashville: American Economic Association
Language: English
Identifier: ISSN: 0002-8282
EISSN: 1944-7981
DOI: 10.1257/aer.103.5.1728
CODEN: AENRAA
Source: ProQuest Central

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Asset Prices and Institutional Investors

Copyright© 2013 American Economic Association ;Copyright American Economic Association Aug 2013 ;ISSN: 0002-8282 ;EISSN: 1944-7981 ;DOI: 10.1257/aer.103.5.1728 ;CODEN: AENRAA

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