Do Institutional Investors Stabilize Equity Markets in Crisis Periods? Evidence from COVID-19
Journal
Management Science
ISSN
0025-1909
Type
journal article
Date Issued
2025-02-05
Author(s)
Abstract
During the COVID-19 stock market crash, U.S. stocks with higher institutional ownership (IO) performed worse than those with lower IO. By studying firm-level changes, we identify two mechanisms behind this effect: a sudden downscaling of institutional capital in the equity market and a collective attempt by institutions to reposition their equity portfolios toward more COVID-resilient stocks. The stock price effects of their “portfolio downscaling” trades quickly reversed in the market’s recovery phase, whereas those of their “portfolio repositioning” trades lingered. The institutional rush for firm resilience also caused price pressures, with retail investors providing liquidity to stocks sold by institutional investors, both during the crisis and afterward. Overall, our results indicate that when a tail risk is realized, institutional investors amplify price crashes.
Language
English (United States)
Refereed
Yes
Publisher
Institute for Operations Research and the Management Sciences (INFORMS)
Volume
Forthcoming
File(s)![Thumbnail Image]()
Name
GlossnerMatosRamelliWagner_COVID19IO_MS2025_Published.pdf
Size
2.8 MB
Format
Adobe PDF
Checksum (MD5)
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