Institutional ownership and stock liquidity
This paper examines how institutional ownership influences the cross-sectional differences in stock liquidity for a sample of stocks listed on the NYSE and the AMEX. The author finds that stocks with larger increases in the number of institutional investors tend to be more liquid than other stocks. Further analysis reveals that this effect tends to be stronger for stocks with more severe asymmetric information. Moreover, active institutional investors, such as independent advisors and mutual funds, exert larger impacts on stock liquidity than passive institutions do. These results are consistent with the theoretical prediction that information competition among institutional investors increases stock liquidity.