Abstract
Institutions exhibit substantial heterogeneity in trading behavior. Although many studies consider their investment horizon or portfolio concentration in isolation, we propose a two-way investor classification that jointly accounts for both characteristics. Our conceptual framework provides an intuitive account of each institutional investor group’s trading and the ensuing impact on market price dynamics, offering fresh insights into seemingly mixed findings in the literature. Our results indicate that a short investment horizon and a high portfolio concentration are both proxies for an informational advantage. We also reveal substantial heterogeneity in the behavior of concentrated versus diversified institutions with similar investment horizons.
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