Liquidity Effects of Institutional Investment Horizons

53 Pages Posted: 16 Feb 2018

See all articles by Zhen Lei

Zhen Lei

Hong Kong Polytechnic University - School of Accounting and Finance

Ping-Wen Sun

Minjiang University - Newhuadu Business School

Bin Yu

Jiangxi University of Finance and Economics

Date Written: September 4, 2017

Abstract

We examine whether institutional investors with different investment horizons exert different influences on a stock’s liquidity effects. Our findings show that stocks increased by short-term institutions become more liquid while stocks increased by long-term institutions become less liquid. Furthermore, short-term institutions pay more attention to changes in a firm’s recent fundamentals than long-term institutions and changes in liquidity effects resulting from holding changes of short-term institutions have more explanation power on stock returns in the next quarter than those resulting from long-term institutions, suggesting short-term institutions are more informed about a firm’s short-term fundamentals than long-term institutions. Finally, we find increased holdings of both short-term and long-term institutions for a stock caused by improvement in a firm’s fundamentals generally make the stock more liquid, suggesting institutional demand provides a channel through which a firm’s fundamentals can influence its stock liquidity.

Keywords: stock liquidity; institutional investors; investment horizon; informed; fundamentals

JEL Classification: G12, G20

Suggested Citation

Lei, Zhen and Sun, Ping-Wen and Yu, Bin, Liquidity Effects of Institutional Investment Horizons (September 4, 2017). Available at SSRN: https://ssrn.com/abstract=3118181 or http://dx.doi.org/10.2139/ssrn.3118181

Zhen Lei

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom
Kowloon
Hong Kong

Ping-Wen Sun (Contact Author)

Minjiang University - Newhuadu Business School ( email )

Fujian
China

Bin Yu

Jiangxi University of Finance and Economics ( email )

South Lushan Road
Nanchang, Jiangxi 330013
China

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