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Journal of Banking & Finance Vol. 89 2018

Institutional trading and asset pricing

Bart Frijns1; Thanh Huynh2; Alireza Tourani-Rad; P. Joakim Westerholm3

1 Auckland University of Technology · 2 Monash University · 3 The University of Sydney

Abstract

This paper examines whether the trading activity of different investor types, institutional versus retail, can affect the relation between beta and average returns. We find that the beta-return relation is strong and positive on days with high institutional trading activity, and negative and significant on low institutional trading days. Our findings are robust and not driven by recently documented effects such as macroeconomic news and leverage constraints, among others. The evidence is consistent with the hypothesis that the preferences and characteristics of various investor types, which are revealed through their trading activity, cause the slope of the Security Market Line to change.

DOI
10.1016/j.jbankfin.2018.01.018
Volume
89
Pages
59-77
Language
en
Sources
openalex crossref bibtex:phds-export.bib

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