Conference Agenda

This work studies how the concentration of ownership among institutional investors influences price informativeness in financial markets. We find that an increase in institutional ownership concentration — whether measured by investors’ assets under management (AUM) or their firm-level holdings — reduces price informativeness as well as investment-to-price sensitivity. This negative effect is attributed to the learning and trading decisions of active, rather than passive, investors. To establish causality, we utilize a setting involving mergers between active investors, and our results remain consistent across both U.S. and international contexts.

Private information in financial markets improves the informativeness of asset prices and guides resource allocation. However, informed trading generates rents at the expense of uninformed traders, creating a trade-off between price informativeness and liquidity. In addition, private incentives to acquire information need not align with the value of that information for agents who rely on prices to make decisions. We show that this trade-off can be eliminated by a market structure that separates information production from liquidity provision. In such a structure, prices remain informative while liquidity is preserved, and incentives to acquire information align with its value for decision-makers.

Conventional wisdom suggests that informed investors benefit from trading monopolistically. We show this can fail when investors face uncertainty about liquidity. In a Kyle (1985) framework, we compare profits under monopolistic and competitive equilibria when investors face uncertainty about liquidity trading volatility. While low uncertainty favors coordination, sufficiently high uncertainty reverses this: an individual investor's competitive profits can exceed total monopolistic profits. Endogenizing the collusion decision generates novel predictions: small increases in liquidity uncertainty can cause discrete jumps in trading volume, price volatility, and price informativeness.