Accounting Papers

Document Type

Journal Article

Date of this Version

4-2016

Publication Source

Journal of Corporate Finance

Volume

37

Start Page

132

Last Page

151

DOI

10.1016/j.jcorpfin.2015.12.013

Abstract

We show that institutions invest in stocks within an industry that maintain exposure to their underlying industry risk factor. These "pure play" stocks have greater numbers ofinstitutional investors and institutions systematically overweight them in their portfolios while underweighting low industry-exposure stocks of firms in the same nominal industry.Pure play stocks also have greater liquidity measured by stock turnover and price impact. An implication of these results is that catering to these preferences could be an important variable in firms' risk management decisions, potentially offsetting incentives to reduce volatility via hedging. We further characterize institutions' investments for pureplay stocks across institution type, industries, and over time.

Copyright/Permission Statement

© 2016. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/.

Keywords

institutional investor, hedging, catering, pure play stocks

Embargo Date

1-6-2018

Available for download on Saturday, January 06, 2018

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Date Posted: 27 November 2017

This document has been peer reviewed.