Institutional Ownership, Information and Liquidity
Posted: 27 Nov 1996
Date Written: September 1996
We examine whether market makers believe institutional trades are informed by examining relations between institutional ownership and quoted bid-ask spreads in general, and the adverse-selection component of the spread in particular. For our sample of Nasdaq stocks from 1983 through 1991, we find that high institutional ownership leads to narrower spreads and spreads with a smaller proportion attributable to asymmetric information. Our results are not attributable to institutions preferences for liquid securities. Our informativeness measure varies significantly across institutional type and is positively related to the largest block size held by an institutional owner.
JEL Classification: D82, G2, G32
Suggested Citation: Suggested Citation