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Greener Pastures and the Impact of Dynamic Institutional Preferences

James A. Bennett¹; Richard W. Sias²; Laura T. Starks³

¹ University of Massachusetts Boston · ² Washington State University · ³ University of Texas

Although institutional investors have a preference for large capitalization stocks, over time they have shifted their preferences toward smaller, riskier securities. These changes in aggregate preferences have arisen primarily from changes in the preferences of each class of institution, rather than changes in the importance of different classes. Evidence also suggests that recent growth in institutional investment combined with this shift in preferences helps explain why markets in general, and smaller stocks in particular, have exhibited greater firm-specific risk and liquidity in recent years. Additional analyses suggest that institutional investors moved toward smaller securities because such securities offer “greener pastures.”

DOI

10.1093/rfs/hhg040

Volume

16 (4)

Pages

1203-1238

Language

en

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BibTeX

Sources

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