The extant literature shows that institutional investors engage in corporate governance to enhance a firm's long-term value. Measuring firm performance using the F-Score, we examine the persistent monitoring role of institutional investors and identify the financial aspects of a firm that institutional monitoring improves. We find strong evidence that longterm institutions with large shareholdings consistently improve a firm's F-Score and that such activity occurs primarily through the enhancement of the firm's operating efficiency. Other institutions reduce a firm's F-Score. Moreover, we find evidence that, while monitoring institutions improve a firm's financial health, transient (followed by non-transient) institutions trade on this information.

R ecent models and the popular press suggest that large groups of hedge funds follow similar strategies resulting in crowded equity positions that destabilize markets. Inconsistent with this assertion, we find that hedge fund equity portfolios are remarkably independent. Moreover, when hedge funds do buy and sell the same stocks, their demand shocks are, on average, positively related to subsequent raw and risk-adjusted returns. Even in periods of extreme market stress, we find no evidence that hedge fund demand shocks are inversely related to subsequent returns. Our results have important implications for the ongoing debate regarding hedge fund regulation.Hedge funds are crowding into more of the same trades these days, amplifying market swings during crises and unnerving investors. Such trading has stoked market jitters in recent months and helped to diminish the impact of corporate fundamentals on stock-market movements.

This paper reevaluates the cross-sectional effect of institutional ownership on idiosyncratic volatility by conditioning on institutions' investment horizon. Prior literature establishes a positive link between growing institutional ownership and idiosyncratic volatility. However, this effect may vary depending on the type of institutional ownership. We document that short-term (long-term) institutional ownership is positively (negatively) linked to idiosyncratic volatility in the cross section. These opposite effects persist after controlling for institutional preferences and information-based trading and remain qualitatively unchanged after controlling for endogeneity. This suggests that short-term (long-term) institutions exhibit higher (lower) trading activity, which increases (decreases) idiosyncratic volatility.1 Brandt et al. (2010) show that by 2003, aggregate IV had decreased to pre-1990s levels. They find no evidence that institutional investors caused the increase in IV in early 2000. As such, the authors conclude that the increase could have been caused by retail investors. 2 See Jones and Lipson (2003) and Kaniel et al. (2008) for evidence of institutional investor dominance in the financial market. 3 See Karpoff (1987) for a review on the early literature in this area. His synthesis of previous research concludes that while there is a positive correlation between the absolute value of price changes and volume, the relation between price changes per se and volume is non-monotonic and asymmetric (i.e., the correlation between volume and positive price changes is positive, while that between volume and negative price changes is negative). Schwert (1989) and Gallant et al. (1992) also provide good reviews of the empirical and theoretical research in this area.

We examine whether stock‐level options information drives mutual fund performance. Our paper is motivated by existing studies indicating that options prices or implied volatilities predict stock returns. We find that stock‐implied volatility innovations forecast mutual fund performance. Specifically, mutual funds investing in fewer optionable stocks or optionable stocks with favorable information outperform other funds. In addition, mutual fund managers overall do not trade on past options information. However, well‐performing fund managers use that information to decrease their holdings in poorly performing stocks. Moreover, well‐performing mutual funds containing strong options information tend to increase their holdings in optionable stocks in subsequent periods. © 2017 Wiley Periodicals, Inc. Jrl Fut Mark 38:390–412, 2018

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We show that institutional ownership in equity mutual funds predicts fund performance. Our measure of institutional ownership in mutual funds is directly from institutions’ quarterly 13(f) filings so it provides a broader coverage of institutional investment in mutual funds than existing studies. Most institutions holding mutual funds are independent investment advisors and bank trusts who invest in mutual funds on behalf of their clients. Our results show that funds held by institutions perform better than funds not held by institutions for at least 3 years. Institutions’ informational advantage is the main driver of the outperformance of institution‐held funds.

We test whether model misspecification or liquidity spirals primarily explain the observed excess dependence in filtered (for economic fundamentals) hedge fund index returns and the links between volatility, liquidity shocks, and hedge fund return clustering. Evidence supports the model misspecification hypothesis: i) hedge fund filtered return clustering is symmetric, ii) filtered Short Bias fund returns exhibit negative dependence with filtered returns for other hedge fund types, iii) negative liquidity shocks are associated with clustering in both tails and market volatility subsumes the role of negative liquidity shocks, and iv) these same patterns appear in size-sorted equity portfolios.

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