Liquidity risk and institutional ownership

Charles Cao, Lubomir Petrasek

Research output: Contribution to journalArticlepeer-review

24 Scopus citations


Institutional ownership affects the sensitivity of stock returns to changes in market liquidity (liquidity risk). Overall, institutional ownership lowers the liquidity risk of stocks. However, different types of institutions affect liquidity risk in opposite ways. Stocks held by hedge funds, especially levered hedge funds, as marginal investors are more sensitive to changes in market liquidity than comparable stocks held by other types of institutions or by individuals. In contrast, stocks held by banks are less sensitive to changes in aggregate liquidity. These findings are robust to alternative specifications that control for institutional preferences for different stock characteristics and risk.

Original languageEnglish (US)
Pages (from-to)76-97
Number of pages22
JournalJournal of Financial Markets
StatePublished - Nov 1 2014

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics


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