Where Do Institutional Investors Seek Shelter when Disaster Strikes? Evidence from COVID-19

Where Do Institutional Investors Seek Shelter when Disaster Strikes? Evidence from COVID-19

Simon Glossner, Pedro Matos, Stefano Ramelli, Alexander Wagner

Series number :

Serial Number: 
688/2020

Date posted :

July 27 2020

Last revised :

November 10 2020
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Keywords

  • cash holdings • 
  • Coronavirus • 
  • Corporate debt • 
  • COVID-19 • 
  • ESG • 
  • Institutional ownership • 
  • leverage • 
  • Pandemic • 
  • retail investors • 
  • Robinhood • 
  • tail risk

During the COVID-19 market crash, U.S. stocks with higher institutional ownership -- in particular, those held more by active, short-term, and more exposed institutions -- performed worse. Portfolio changes through the first quarter of 2020 reveal that institutional investors prioritized corporate financial strength over ‘‘soft’’ environmental and social performance.

Trading data from a large discount brokerage (Robinhood) confirm that retail investors acted as liquidity providers. The effects did not reverse in the second quarter. Overall, the results suggest that when a tail risk realizes, institutional investors amplify price crashes by fire-selling and seeking shelter in ‘‘hard’’ measures of firm resilience.

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Authors

Real name:
Simon Glossner
Professor
Real name:
Pedro Matos
Research Member
Darden School of Business, University of Virginia
Real name:
Stefano Ramelli