Trends in Institutional Stock Ownership
and
dS
Some IImplications
li ti
Marshall Blume and Donald Keim
The Wharton School
University of Pennsylvania
S i Q
Spring
Q-Group
G
C
Conference
f
April 2, 2008
April 2, 2008
Spring Q-Group Conference
1
The Impact of Changing Stock Ownership
● Since World War II, institutional investors have
increased their percentage holdings of US equities.
● Importantly, over time the composition of institutional
portfolios has diverged from the composition of the
market portfolio.
● The
h increased
i
d presence off institutions
i i i
in
i the
h stockk
market has possible implications for
− the
h li
liquidity
idi off the
h market
k
− the behavior of stock prices
− the returns on institutional portfolios
April 2, 2008
Spring Q-Group Conference
2
What we do
● Update
stylized facts on institutional stock ownership, extending
the evidence byy 10 yyears to 2006
→ a period of considerable change in equity markets
● Analyze (somewhat preliminary at this point) the implications
of this changing ownership for
− equity
i market
k liquidity
li idi
− daily return momentum
− institutional returns
April 2, 2008
Spring Q-Group Conference
3
Preview of Conclusions
● Over time, institutions & mutual funds increased their holdings
of smaller stocks and decreased their holdings of larger stocks.
→ Now
N underweight
d
i ht the
th largest
l
t stocks
t k andd
overweight the smaller stocks relative to market weights.
● The increasing liquidity in the stock market generally,
generally and in
smaller cap stocks in particular, over the past two decades mirrors
the increase in institutional ownership of common stocks.
→ Today virtually no stale prices, except for very smallest stocks
● Daily return predictability is time varying
● Any excess returns of institutional investors in the past 25 years
are primarily due to security selection within market cap deciles,
not to allocation across deciles (and not significant).
April 2, 2008
Spring Q-Group Conference
4
Institutional Stock Ownership – Literature
• Overall trends in equity holdings
• Goldsmith (1971) – 1850-1952
• Friedman (1996)
• Trends in composition of equity holdings
• Del Guercia (1996) – banks hold safer stocks
• Falkenstein (1996) – generally tilted towards larger
stocks, except small cap funds
• Gompers and Metrick (2001) – over the 1980 to 1996
period institutions increased their demand for large
stocks and decreased their demand for small stocks
April 2, 2008
Spring Q-Group Conference
5
Institutional Ownership of Common Stock
1900-2006
100
Households
Perrcent of Total Stock Outstanding
90
Institutions
80
70
60
50
40
30
20
10
0
1900
1912
1922
1929
1939
1945
1950
1960
1970
1980
1990
1994
2006
Sources: Goldsmith (1971), FRB Flow of Funds
April 2, 2008
Spring Q-Group Conference
6
Data
• Institutional Holdings (Thomson/CDA via WRDS)
– Quarterlyy institutional holdings
g from 13f filings
g
– Year end 1980 through year end 2006
– All institutions with over $100 million in discretionary
assets must report at quarter end common stock positions of
the greater of 10,000 shares or $200,000
– Some forms are submitted to the SEC late; some are
submitted
b itt d on time
ti andd are, att the
th requestt off the
th
institution, made public a year later
• Mutual Fund Holdings (Thomson/CDA via WRDS)
– Quarterly mutual fund holdings from S12 filings
– Year end 1980 through
g yyear end 2006
April 2, 2008
Spring Q-Group Conference
7
Data (cont.)
(
)
• Trade and Quote (TAQ) data, Jan 1993 to Dec 2006
− Last transactions prices, volumes, and trade times on primary
markets for all NYSE, AMEX and Nasdaq stocks
• CRSP Monthly
M thl andd Daily
D il Returns
R t
Files,
Fil 1980 – 2006
(also shares outstanding, volume)
• We exclude ETFs, closed end funds, and ADRs
• TAQ and CRSP data are matched by a WRDS file
• Stock and institutional/mutual fund data are combined by
matching cusips of individual stocks
April 2, 2008
Spring Q-Group Conference
8
A Caveat when using WRDS-distributed Thomson/CDA Data
Axis Title
e
Cisco Stock Price‐‐1999
140
120
100
80
60
40
20
0
0
06/16
Thomson
Adjustment
(fdate)
30 J
30-Jun
12300
64.4375
0
05/25
0
05/04
0
04/13
0
03/22
0
03/01
Manager 220
Original
Report
(rdate)
D t
Date
31 M
31-Mar
Shares
6150
Price
109.563
WRDS
Adjustment
(rdate)
31 M
31-Mar
12300
109.5625
→ WRDS doubled the market value of Cisco
April 2, 2008
Spring Q-Group Conference
9
Distribution of stock holdings across market
market-cap
cap deciles
● Partition stocks into ten equal-capitalization deciles at the end of
each year from 1980 to 2006
→ each decile contains (approximately) 10% of the total market
value
● Compute institutional (13f) and mutual fund (S12) holdings within
eachh off the
h ddeciles
il at eachh year endd andd produce
d
annuall distributions
di ib i
of holdings.
● Compare value of institutional holdings to total market value of each
decile and compute under- or over-weighting of institutional holdings.
April 2, 2008
Spring Q-Group Conference
10
Equal-Mkt-Cap Deciles vs. Traditional (equal # names) Mkt-Cap Deciles
→ Largest decile represents disproportionately large percent (60%) of market and
Smallest decile represents disproportionately small percent (1.6%) of market
April 2, 2008
Spring Q-Group Conference
11
Table 1
Percentage Distribution of Stock Ownership by Market Cap Deciles: All Stocks, Institutions, and Mutual Funds
Year End 1980 and 2006
A. 1980
All Stocks
All Institutions
All Mutual Funds
Market Cap Decile
4th
5th
6th
Largest
2nd
3rd
9.74
9.99
5.26
10.25
11.02
6.72
9.92
13.51
9.40
9.91
12.07
9.34
10.10
10.99
11.06
4
4
9
13
20
33
35
68
9.77
9
77
8.38
7.02
9.77
9
77
8.63
8.71
10.13
10
13
8.72
8.28
6
6
11
17
19
36
Total for
9th Smallest All Stocks
7th
8th
10.07
11.67
12.50
9.96
10.47
12.49
10.04
9.69
13.47
10.01
7.12
12.67
10.01
3.47
7.09
$1,375
$473
$45
59
127
87
214
133
347
230
577
514
1,091
3,753
4,844
4844
10.10
10
10
10.35
10.76
10.16
10
16
9.54
9.83
9.99
9
99
10.53
10.83
10.04
10
04
10.95
11.14
10.01
10
01
11.43
12.08
10.02
10
02
11.26
11.83
10.00
10
00 $18,841
$18 841
10.20 $12,594
9.52 $3,680
31
67
52
119
81
200
124
324
240
564
584
1,148
4,186
,
5,334
Memo: All Stocks
Number
Cumulative
B. 2006
All Stocks
All Institutions
All Mutual Funds
Memo: All Stocks
Number
Cumulative
5334
→ Market value of stocks is highly concentrated
→ Institutional / Fund portfolios deviate from market weights, and change over time
April 2, 2008
Spring Q-Group Conference
12
Table 2
Percentage Distributions of Stock Ownership by Deciles: All Stocks, Institutions, and Mutual Funds
Year end 1980 and 2006
Largest
2nd
3rd
Market Cap Decile
4th
5th
6th
7th
8th
9th Smallest
Total
A. Percent Over and Underweight
1980
All Institutions
All Mutual Funds
2.7
-45.9
7.4
-34.5
36.2
-5.2
21.9
-5.7
8.8
9.5
15.9
24.1
5.1
25.4
-3.5
34.1
-28.9
26.6
-65.3
-29.2
2006
All Institutions
All Mutual Funds
-14.3
-28.2
-11.7
-10.8
-13.9
-18.2
2.5
6.5
-6.1
-3.2
5.4
8.4
9.1
10.9
14.1
20.7
12.4
18.0
2.0
-4.9
B. Percentage Ownership
1980
All Institutions
All Mutual Funds
35.3
1.8
37.0
2.2
46.9
3.1
41.9
3.1
37.4
3.6
39.9
4.1
36.2
4.1
33.2
4.4
24.5
4.2
11.9
2.3
34.4
3.3
2006
All Institutions
All Mutual Funds
57.3
57
3
14.0
59.0
59
0
17.4
57.5
57
5
16.0
68.5
68
5
20.8
62.8
62
8
18.9
70.5
70
5
21.2
72.9
72
9
21.7
76.3
76
3
23.6
75.1
75
1
23.0
68.2
68
2
18.6
66.8
66
8
19.5
→ Byy 2006, largest
g 30% of the market is underweighted
g
byy institutions / funds
and smaller-cap stocks (approximately the bottom half) are over-weighted
April 2, 2008
Spring Q-Group Conference
13
Time Trend of 4 Cap-Decile groups
Under & Overweighting - All Institutions (%)
30
20
10
0
-10
-20
-30
30
-40
-50
-60
60
Largest 4
April 2, 2008
5th to 8th
9th Decile
Spring Q-Group Conference
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
-70
10th Decile
14
Table 3
Percentage Distributions of Stock Ownership in the Smallest Market Cap Decile
All Stocks, Institutions, and Mutual Funds (Year End 1980 and 2006)
Ninth Decile (Smallest 10% of Market Value)
Next 1%
Next 0.5% Next 0.25% Smallest 0.25% Entire Decile
Largest 8%
A. Percent Over and Underweight
1980
All Institutions
All Mutual Funds
2006
All Institutions
All Mutual Funds
17.1
18.8
-62.5
-66.7
-68.1
-74.7
-79.9
-92.5
-82.2
-93.3
8.5
8
5
12.2
-18
18.6
6
-34.0
-37
37.7
7
-52.6
-54
54.4
4
-68.3
-69
69.2
2
-81.5
B. Percentage Ownership
1980
All Institutions
All Mutual Funds
14.0
2.8
4.5
0.8
3.8
0.6
2.4
0.2
2.1
0.2
11.9
2.3
2006
All Institutions
All Mutual Funds
74.0
20 9
20.9
55.5
12 3
12.3
42.5
88
8.8
31.1
59
5.9
21.0
34
3.4
68.2
18 6
18.6
C. Stocks in Sub-Decile as a Percent of Total Stocks in Market
1980
2006
30.2
29.2
11.7
11.1
9.8
9.7
7.6
7.9
18.1
20.6
77.5
78.5
→ Only the smallest 2% of stocks are under-weighted by institutions / funds
April 2, 2008
Spring Q-Group Conference
15
Comparison with Previous Results
• Gompers
p and Metrick report
p an average
g
correlation from 1980 through 1996 between
institutional ownership and log(market value) of
0 625
0.625
• We recalculated this correlation each year from
1980 through
g 2006.
• Values ranged from 0.61 to 0.67 → same results
• But the results from Equal-Cap decile distributions
shown
h
above
b
are inconsistent
i
i
with
i h these
h
results…
l
• What is happening?
April 2, 2008
Spring Q-Group Conference
16
Figure 3A. Predicted and Actual Institutional Ownership of Securities by Market Value Deciles
1980
06
0.6
Sizes of disks reflect number of
0.5
Labels next to disks are
residuals from the predicted
0.062
0.037
0.073
Perccent Ins
stitutional Ow
wnership
0.4
-0.085
-0.147
0.029
0.056
0.3
0 056
0.056
0.012
0.2
-0.010
0.1
0
7
9
11
13
15
17
19
-0.1
Log of Market Value
→ The estimated regression fits the data reasonably well
April 2, 2008
Spring Q-Group Conference
17
Figure 3B. Predicted and Actual Institutional Ownership of Securities by Market Value Deciles
2006
14
1.4
Sizes of disks reflect number of
securities in that market value decile
1.2
Percent Ins
stitutional Ow
wnership
Labels next to disks are residuals
from the predicted values
-0.603
-0.542
1
-0.496
-0.335
-0.335
-0.216
-0.151
0.028
0.8
-0.049
0 049
0.6
0.019
0.4
0.2
0
10
11
12
13
14
15
16
17
18
19
20
Log
g of Market Value
→ Estimated regression line driven by stocks in the smallest two deciles
April 2, 2008
Spring Q-Group Conference
18
Table 4
Percentage Distribution of Stock Ownership by Cap Deciles
All Stocks, Institutions, and Diversified Equity Mutual Funds; Grouped by Morningstar Equity Style Categories
Year End 2006
Largest
2nd
3rd
Market Cap Decile
4th
5th
6th
7th
8th
17
15
-2
2
18
18
9
-2
-86
-98
-84
-8
-16
-7
-9
25
154
146
160
180
-81
152
9th Smallest
Percent Over and Underweight
S&P 500
Index Funds
Large Value
Large Blend
Large Growth
Mid Value
Mid Blend
Mid Growth
Small Value
Small Blend
Small Growth
45
49
19
11
-38
-99
-97
-99
-100
-100
-100
35
35
34
29
-26
-95
-96
-96
-100
-100
-100
29
30
25
18
23
-88
-89
-96
-100
-100
-100
26
33
22
30
44
-95
-86
-90
-100
-100
-100
10
7
43
8
13
-88
-75
-88
-100
-100
-99
23
21
8
27
50
-67
-60
-64
-98
-99
-97
-76
-74
-52
-40
-34
268
270
255
602
159
626
-99
-99
-90
-76
-77
90
76
120
617
→ Relative to the S&P, Large-Cap funds underweight the largest cap stocks
→ Mid-Cap funds tilt toward the smallest 4 deciles, relative to market weights
→ Small Value and Small Growth funds do not hold any stocks from smallest decile
→ Small Blend funds concentrate their portfolios in the 9thh and 10thh deciles
April 2, 2008
Spring Q-Group Conference
19
Institutional Stock Ownership & Equity Market Liquidity
● Some stylized facts:
− Institutions trade more than individuals
− Institutional
I tit ti l stock
t k ownership
hi increased
i
d over last
l t 25 years
− Big institutional shift to smaller stocks over last 25 years
● Two conjectures:
(1) as institutions increase their overall ownership of stocks
(figure 1), overall equity market liquidity should
increase, holding constant other influences on liquidity
(2) as institutions increase their relative holdings of smaller stocks
((figure
g
2),
), the relative liquidity
q
y of smaller stocks should increase
● We examine three liquidity measures:
bid-ask spreads, yearly turnover rates, and stale prices
April 2, 2008
Spring Q-Group Conference
20
Figure 4
Median Bid-Ask Spreads (%) for Market-Cap Quintiles with equal # of Stocks
(Quintile cutoffs based on all NYSE
NYSE, AMEX and Nasdaq Stocks)
12
Largest Quintile
2
3
4
Smallest Quintile
10
8
6
4
2
0
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
● Even during regimes when minimum tick size was constant at eighths, sixteenths and
pennies, percent spreads were falling
● Largest declines for the 3 smallest quintiles (~ the smallest decile in analysis above)
→ smallest
ll stocks
k most sensitive
i i to changes
h
in
i factors
f
affecting
ff i liquidity
li idi
→ Decline due to increased institutional holdings of these stocks over the period?
April 2, 2008
Spring Q-Group Conference
21
Figure 5
Turnover – Annual Ratio of (Shares Traded/Total Outstanding)
Grouped Market-Cap
Market Cap Deciles
400%
350%
Largest 4 Deciles
300%
Deciles 5 to 8
Decile 9
250%
Smallest Decile
200%
150%
100%
50%
0%
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
● General increase in turnover through 2001 is consistent with first conjecture, but
subsequent decline afterward despite increased institutional ownership is inconsistent
● Ratio of smallest-cap turnover to largest-cap turnover increased from 1.83 in 1980 to
only 1.94 in 2006, despite the large institutional shift toward smaller-cap stocks
→ Inconsistent with second conjecture
April 2, 2008
Spring Q-Group Conference
22
Percentage of Stocks that Traded Within the Last Five minutes of the Trade Day
Grouped Deciles
1.0
1
0
0.9
0.8
0.7
0.6
05
0.5
0.4
0.3
0.2
0.1
0.0
Largest 4 Deciles
Deciles 5 to 8
Decile 9
Smallest Decile
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2004
2005
2006
Sub-Groups of the Smallest Decile
1.0
Largest 8%
Next 1%
Next0.5%
Next 0.25%
Smallest 0.25%
0.8
0.6
0.4
0.2
0.0
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
→ By end of 2006 there were virtually no stale prices, except for very smallest stocks
April 2, 2008
Spring Q-Group Conference
23
Percentage of Stocks that Traded on Day t
Grouped
p Deciles
1.00
0.95
0.90
0.85
Largest 4 Deciles
Deciles 5 to 8
Decile 9
Smallest Decile
0.80
0.75
0.70
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Sub-Groups
Sub
Groups of the Smallest Decile
1.00
0.95
0.90
0.85
Largest 8%
Next 1%
Next 0.5%
Next 0.25%
Smallest 0.25%
0 25%
0.80
0.75
0.70
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
April 2, 2008
Spring Q-Group Conference
24
Institutional Stock Ownership & Stock Return Predictability
● Research has documented short-term predictability in returns, and
some attribute part of this predictability to stale prices.
− Mutual fund predictability:
Chalmers, Edelen, and Kadlec (2002); Goetzmann, Ivkovic, and
Rouenhorst (2001); and Zitzewitz (2003)
− Direct Tests of Stock Return Predictability:
e.g., Lo & Mackinlay (1988,1989,1990), Kadlec & Patterson (1999)
● The recent increase in trade volume and institutional ownership – and
the concurrent decrease in stale prices, particularly for smaller stocks –
warrants a reexamination of the evidence on predictability.
p
y
● Using equal-cap decile groups, we examine daily predictability with:
− Regressions using lagged S&P 500 futures price changes
− Conditional returns (based on extreme prior-day S&P price changes)
April 2, 2008
Spring Q-Group Conference
25
Table 5
Time Variation in Stock Return Predictability (w\ Stale Prices)
Estimated slope coefficients from the following model estimated separately in each
of the 14 annual periods:
R i,t = a 0 + a 2 R(SP fut) t-1 + e i,t
where R i,t is the return on cap-decile group i for day t and R(SP fut) t-1 is the
S&P 500 futures price change over the interval from the close on day t –2 to
3:55 pm on day t -1. Values in bold indicate significance at the .05 level.
year
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Market Capitalization Decile Groups
Largest 4 5 to 8
9
Smallest
-0.054
-0.058
-0.018
0.081
-0.053
-0 056
-0.056
-0.030
0.037
0.009
-0.019
-0.186
-0.109
-0.138
-0.056
0.152
0.146
0.133
0.168
0.077
0 098
0.098
0.009
0.163
0.030
0.027
-0.090
-0.058
-0.035
0.086
0.303
0.293
0.241
0.210
0.162
0 226
0.226
0.103
0.265
0.116
0.078
0.026
0.027
0.054
0.183
0.304
0.267
0.242
0.229
0.164
0 243
0.243
0.163
0.255
0.144
0.031
0.070
-0.056
-0.004
0.162
→ Time series of estimated slopes is inconsistent with patterns in stale prices
April 2, 2008
Spring Q-Group Conference
26
Time Variation in Stock Return Predictability (No Stale Prices)
Estimated slope coefficients from the following model estimated separately in each
off the
h 14 annuall periods:
i d
R i,t = a 0 + a 2 R(SP fut) t-1 + e i,t
where R i,t is the return on cap-decile group i for day t and R(SP fut) t-1 is the
S&P 500 futures price change over the interval from the close on day t –2 to
3 55 pm on dday t -1.
3:55
1 V
Values
l iin bold indicate
i di
significance
i ifi
at the
h .05
05 level.
l l
year
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Market Capitalization Decile Groups
Largest 4 5 to 8
9
Smallest
-0.055
-0.060
-0.017
0.081
-0.063
-0.057
-0.028
0.027
0.000
-0.027
-0.188
0.188
-0.112
-0.139
-0.067
0.141
0.134
0.122
0.163
0.078
0.091
-0.005
0.162
0.029
0.026
-0.107
0.107
-0.062
-0.066
0.044
0.290
0.305
0.251
0.222
0.159
0.222
0.106
0.261
0.114
0.069
0.017
0.019
0.033
0.146
0.395
0.294
0.330
0.287
0.195
0.283
0.219
0.278
0.144
0.003
0.069
-0.081
-0.033
0.130
→ Compared
C
d tto results
lt with
ith stale
t l prices,
i
coefficients
ffi i t here
h are often
ft larger
l
in
i the
th early
l partt
of sample, and little different thereafter - stale prices??
April 2, 2008
Spring Q-Group Conference
27
Daily Returns (basis points) conditional on prior-day return on S&P 500
S&P up 1%
80
60
40
20
0
-20
-40
Largest 4 Deciles
Deciles 5 to 8
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Decile 9
Smallest Decile
S&P down 1% (decile return mutliplied by -1)
80
60
40
20
0
-20
-40
Largest 4 Deciles
Deciles 5 to 8
1990
19991
19992
19993
19994
19955
19966
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Decile 9
April 2, 2008
Spring Q-Group Conference
Smallest Decile
28
Institutional Stock Holdings & Institutional Returns
● Long academic literature linking trading to returns
g speculation
p
and pprices, S&P listingg effect
− block trading,
● Investment industry has for many years used investment
flows to explain and predict returns
− e.g., Biryini Associates
● Gompers
G
and
d Metrick
M t i k (2001) conclude
l d th
thatt institutional
i tit ti l
flows explain “part of the disappearance of the historical
small-company stock premium.”
● Do institutional stock holdings forecast equity returns?
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Attribution Analysis
y
Decompose the institutional excess returns into excess returns earned
from security selection (deviation from market weights on securities
within market-cap deciles) and from asset allocation (deviation from
g for market-capp deciles):
)
market weights
Security Selection
Asset Allocation
Lower case letters represent attributes of the aggregate of institutional portfolios and
upper case letters attributes of the market portfolio.
Subscripts refer to deciles of market cap.
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Total Excess Return by Quarter (basis points)
200
150
100
50
0
-50
-100
-150
150
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005
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Security and Decile Excess Returns (basis points)
200
decile
security
150
100
50
0
-50
-100
-150
150
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005
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Attribution Analysis
Comparison of Institutional Returns to Benchmark Returns
The table reports means and t-values (in italics ) of the quarterly total
excess returns (in basis points) for institutional investors in our sample,
and the decomposition into security selection and asset allocation, for
several time periods.
Excess Returns (basis points)
Security Selection Asset Allocation
1981 1998
1981-1998
10.09
10
09
2.37
68.99
4.56
-11.85
-3.30
0.33
0
33
0.12
4.07
0.45
5.14
1.95
10.41
10
41
2.29
73.06
4.71
-6.71
-1.56
1981-2006
7.50
1.64
3.07
1.26
10.57
2.17
1981-2006
(exc 1999-2000)
4.60
1.14
1.53
0.59
6.13
1.44
1999-2000
2001-2006
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Total
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Attribution Analysis - Discussion
● 1999 and 2000 aside, institutional performance during 19812006 is marked by substantial variation
● Positive value added from security selection in the 1981-1998
period is offset by negative contribution from security selection
in the 2001
2001-2006
2006 period.
period
● Positive contribution from asset allocation in the 2001-2006
pperiod likelyy reflects the overweighting
g
g of smaller-capp stocks
and underweighting of larger-cap stocks over this time period
relative to market weights (see figure 2)
→ a period
i d when
h small-cap
ll
stocks
t k significantly
i ifi tl outperformed
t f
d
large-cap stocks.
● Excess returns of institutions are not significant in this period
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Conclusions
● Over time, institutions & mutual funds increased their holdings
of smaller stocks and decreased their holdings of larger stocks.
→ Now
N underweight
d
i ht the
th largest
l
t stocks
t k andd
overweight the smaller stocks relative to market weights.
● The increasing liquidity in the stock market generally,
generally and in
smaller cap stocks in particular, over the past two decades mirrors
the increase in institutional ownership of common stocks.
→ Today virtually no stale prices, except for very smallest stocks
● Daily return predictability is time varying
● Any excess returns of institutional investors in the past 25 years
are primarily due to security selection within market cap deciles,
not to allocation across deciles (and not significant).
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35