The percentage of U.S. equity held by institutional investors has quadrupled in the past four decades, and a prominent share of trading activity is due to institutions. Yet we know little about how institutions affect the informational efficiency of share prices, one important dimension of market quality. We study a broad cross-section of NYSE-listed stocks between 1983 and 2003, using measures of the relative informational efficiency of prices constructed from transaction data. We find that stocks with greater institutional ownership are priced more efficiently in the sense that their transaction prices more closely follow a random walk. Moreover, efficiency improves following exogenous shocks in institutional ownership. Finally, we demonstrate that increases in actual institutional trading volume are associated with greater efficiency, an effect that appears to be distinct from the effect associated with cross-sectional differences in institutional holdings.

Reversal is the current stylized fact of weekly returns. However, we find that an opposing and long-lasting continuation in returns follows the well-documented brief reversal. These subsequent momentum profits are strong enough to offset the initial reversal and to produce a significant momentum effect over the full year following portfolio formation. Thus, ex post, extreme weekly returns are not too extreme. Our findings extend to weekly price movements with and without public news. In addition, there is no relation between news uncertainty and the momentum in 1-week returns.RETURNS OF INDIVIDUAL STOCKS reverse in the short run. Lehmann (1990) and Jegadeesh (1990) find that stocks with the lowest returns over the prior week or month outperform stocks with the highest returns over the prior period. Given these findings, the literature currently views extreme weekly returns as larger than those warranted by a stock's fundamentals, due to overreaction and/or to microstructural issues. However, we find evidence suggesting that extreme weekly returns are not extreme enough: Despite the brief reversal documented by prior research, abnormal returns over the 52 weeks following an extreme weekly return are actually in the same direction as those in the extreme week. In other words, we find return momentum in a new and seemingly unexpected place-weekly returns.While prior studies examine the performance of stocks with extreme weekly returns for only a few weeks, which is the duration of the reversal, momentum profits emerge several weeks after an extreme return and persist over the remainder of the year. The momentum that we document easily offsets the brief and initial reversal in returns. Figure 1 depicts this result (the figure is illustrative only; our statistical methods are based on calendar time, not the event time shown in the figure). Each week we construct a portfolio that is long stocks

We analyze the role of retail investors in stock pricing using a database uniquely suited for this purpose. The data allow us to address selection bias concerns and to separately examine aggressive (market) and passive (limit) orders. Both aggressive and passive net buying positively predict firms’ monthly stock returns with no evidence of return reversal. Only aggressive orders correctly predict firm news, including earnings surprises, suggesting they convey novel cash flow information. Only passive net buying follows negative returns, consistent with traders providing liquidity and benefiting from the reversal of transitory price movements. These actions contribute to market efficiency.

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