Investors' Horizons and the Amplification of Market Shocks

This paper shows that during episodes of market turmoil, 13F institutional investors with short trading horizons sell their stockholdings to a larger extent than 13F institutional investors with longer trading horizons. This creates price pressure for stocks held mostly by short-horizon investors, w...

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Bibliographic Details
Published in:	The Review of financial studies 2013-07, Vol.26 (7), p.1607-1648
Main Authors:	Cella, Cristina, Ellul, Andrew, Giannetti, Mariassunta
Format:	Article
Language:	eng
Subjects:	Bank stocks Bankruptcy Capital formation Capital market Economic shock Hedge funds Institutional investments Institutional investors Investment churning Investment horizon Investors Market Mutual funds Stock prices Stock sales Stock shares Stockholders Stocks Studies
Online Access:	Get full text
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Summary:	This paper shows that during episodes of market turmoil, 13F institutional investors with short trading horizons sell their stockholdings to a larger extent than 13F institutional investors with longer trading horizons. This creates price pressure for stocks held mostly by short-horizon investors, which, as a consequence, experience larger price drops, and subsequent reversals, than stocks held mostly by long-horizon investors. These findings, obtained after controlling for the withdrawals experienced by the investors, are not driven by other institutional investors' and firms' characteristics. Overall, the evidence indicates that investors with short horizons amplify the effects of market-wide negative shocks by demanding liquidity at times when other potential buyers' capital is scarce.
ISSN:	0893-9454 1465-7368