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| Author: | Lewellen, J. |
| Title: | Institutional investors and the limits of arbitrage |
| Journal: | Journal of Financial Economics
2011 : OCT, VOL 102:1 p.62-80 |
| Index terms: | arbitrage trading institutional investors stock markets stock returns portfolio management |
| Language: | eng |
| Abstract: | The returns and stock holdings of institutional investors from 1980 to 2007 provide unsubstantial evidence of stock-picking skill. Institutions as a whole represent the market portfolio well, with pre-cost returns correlating nearly perfectly with the value-weighted index and having an insignificant CAPM alpha of 0.08% quarterly. Institutions also show little tendency to utilize any of the main characteristics known to predict stock returns, such as book-to-market, momentum, or accruals. Although certain groups of institutions have modest stock-picking skill relative to the CAPM, their performance is almost totally explained by the book-to-market and momentum effects in returns. In addition, none of the groups hold a portfolio that deviates efficiently from the market portfolio. |
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