Return autocorrelation and institutional investors

Richard W. Sias; Laura T. Starks

doi:10.1016/S0304-405X(97)00026-3

Return autocorrelation and institutional investors

Richard W. Sias, Laura T. Starks

Research output: Contribution to journal › Article › peer-review

211 Scopus citations

Abstract

We propose and test the hypothesis that trading by institutional investors contributes to serial correlation in daily returns. Our results demonstrate that NYSE portfolio and individual security daily return autocorrelations are an increasing function of the level of institutional ownership. Moreover, the results are consistent with the hypothesis that institutional trading reflects information and increases the speed of price adjustment. The relation between autocorrelation and institutional holdings does not, however, appear to be driven by market frictions or rational time-varying required rates of return. We conclude that institutional investors' correlated trading patterns contribute to serial correlation in daily returns.

Original language	English (US)
Pages (from-to)	103-131
Number of pages	29
Journal	Journal of Financial Economics
Volume	46
Issue number	1
DOIs	https://doi.org/10.1016/S0304-405X(97)00026-3
State	Published - Oct 1997
Externally published	Yes

Keywords

Efficiency
Institutional investors
Return autocorrelation

ASJC Scopus subject areas

Accounting
Finance
Economics and Econometrics
Strategy and Management

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10.1016/S0304-405X(97)00026-3

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AB - We propose and test the hypothesis that trading by institutional investors contributes to serial correlation in daily returns. Our results demonstrate that NYSE portfolio and individual security daily return autocorrelations are an increasing function of the level of institutional ownership. Moreover, the results are consistent with the hypothesis that institutional trading reflects information and increases the speed of price adjustment. The relation between autocorrelation and institutional holdings does not, however, appear to be driven by market frictions or rational time-varying required rates of return. We conclude that institutional investors' correlated trading patterns contribute to serial correlation in daily returns.

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KW - Return autocorrelation

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Return autocorrelation and institutional investors

Abstract

Keywords

ASJC Scopus subject areas

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