My research broadly addresses the behavior and impact (intended or unintended) of institutional investors. Institutional investors are an important class of investors for several reasons. First, institutional investors control an increasing majority of financial assets. Mutual funds, which hold individual’s assets, are ultimately controlled by the mutual fund manager, who is a professional. Hedge funds, insurance companies, and pension funds — all of these are run by institutional investors. By way of contrast, an individual trading stocks at home with a personal brokerage account is not an institutional investor.
More specifically, my research investigates institutional investors and their effect on price efficiency in financial markets. This agenda stems from a paradox:
1. Institutional investors are supposed to be sophisticated.
2. Institutional investors are growing as a % of market participants.
3. #1 and #2 should combine to give more efficient pricing (i.e. less noise, irrational behavior, anomalies, etc.).
4. Yet, we do not observe this. Why?
My papers investigate this primarily in Equity Markets (Stocks), but also in Derivatives, Commodity Markets, and Fixed Income. Key topic areas include Short Selling, Securities Lending, Network Effects, High-Frequency Trading, Managerial Incentives, Mutual Funds, Hedge Funds, and Exchange-Traded Funds (ETF).