Do Institutional Investors Improve Stock Liquidity?

This paper explores the impact of institutional investors on stock liquidity, according to their type, investment style, level of activism and portfolio rotation. We found that smaller firms benefit from institutional investment: spreads are narrowed and stock prices more resilient. Whereas, for larger firms, institutional investors can increase transaction costs. We also found that contrarianstrategies add liquidity to the market, as do diversification strategies, whereas idiosyncratic strategies decrease stock liquidity; institutional investor activism sends a positive signal to the market for ...