Return autocorrelation and institutional investors

Richard W. Sias, Laura T. Starks

Research output: Contribution to journalArticlepeer-review

180 Scopus citations

Abstract

We propose and test the hypothesis that trading by institutional investors contributes to serial correlation in daily returns. Our results demonstrate that NYSE portfolio and individual security daily return autocorrelations are an increasing function of the level of institutional ownership. Moreover, the results are consistent with the hypothesis that institutional trading reflects information and increases the speed of price adjustment. The relation between autocorrelation and institutional holdings does not, however, appear to be driven by market frictions or rational time-varying required rates of return. We conclude that institutional investors' correlated trading patterns contribute to serial correlation in daily returns.

Original languageEnglish (US)
Pages (from-to)103-131
Number of pages29
JournalJournal of Financial Economics
Volume46
Issue number1
DOIs
StatePublished - Oct 1997
Externally publishedYes

Keywords

  • Efficiency
  • Institutional investors
  • Return autocorrelation

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management

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