Institutional Investments in Pure Play Stocks and Implications for Hedging Decisions

52 Pages Posted: 4 Feb 2016

See all articles by Bernadette A. Minton

Bernadette A. Minton

Ohio State University (OSU) - Department of Finance

Catherine M. Schrand

University of Pennsylvania - Accounting Department

Date Written: February 1, 2016

Abstract

We show that institutions invest in stocks within an industry that maintain exposure to their underlying industry risk factor. These "pure play" stocks have greater numbers of institutional investors and institutions systematically overweight them in their portfolios while underweighting low industry-exposure stocks of firms in the same nominal industry. Pure play stocks also have greater liquidity measured by stock turnover and price impact. An implication of these results is that catering to these preferences could be an important variable in firms' risk management decisions, potentially offsetting incentives to reduce volatility via hedging. We further characterize institutions' investments for pure play stocks across institution type, industries, and over time.

Keywords: Pure play stocks, institutional investors’ preferences, industry exposure, hedging

JEL Classification: G11, G23, G32

Suggested Citation

Minton, Bernadette A. and Schrand, Catherine M., Institutional Investments in Pure Play Stocks and Implications for Hedging Decisions (February 1, 2016). Journal of Corporate Finance, Forthcoming, Charles A. Dice Working Paper No. 2016-3, Fisher College of Business Working Paper No. 2016-03-03, Available at SSRN: https://ssrn.com/abstract=2715153

Bernadette A. Minton (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States
614-688-3125 (Phone)
614-292-2359 (Fax)

Catherine M. Schrand

University of Pennsylvania - Accounting Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-898-6798 (Phone)
215-573-2054 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
80
Abstract Views
1,100
rank
362,134
PlumX Metrics