Institutional Investment Constraints And Stock Prices

Abstract

We test the hypothesis that investment constraints in delegated portfolio management may distort demand for stocks, leading to price underreaction to news and stock return predictability. We find that institutions tend not to buy more of a stock with good news that they already overweight; they are reluctant to sell a stock with bad news that they already underweight. Stocks with good news overweighted by institutions subsequently significantly outperform stocks with bad news underweighted by institutions. The impact of institutional investment constraints sheds new light on asset pricing anomalies such as stock price momentum and post-earnings announcement drift.

Publication Date

4-1-2017

Publication Title

Journal of Financial and Quantitative Analysis

Volume

52

Issue

2

Number of Pages

465-489

Document Type

Article

Personal Identifier

scopus

DOI Link

https://doi.org/10.1017/S0022109017000102

Socpus ID

85014680755 (Scopus)

Source API URL

https://api.elsevier.com/content/abstract/scopus_id/85014680755

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