Institutional Ownership, Retail Trading and Stock Return Comovement

Abstract

This thesis studies the excess return comovement among stocks with similar institutional ownership. I show that after a negative exogenous demand shock on institutional ownership, stocks comove more with low institutional ownership stocks and comove less with high institutional ownership stocks. Moreover, such excess return comovement increases with retail trading, especially for stocks favored by retail investors, and during periods of high market uncertainty. The overall results suggest that the institutional ownership-based excess return comovement is in line with the category or habitat view of return comovement, and institutional ownership plays a crucial role in shaping the investor clientele and the consequent excess return comovement.