Institutional Portfolio Composition : An Examination of the Prudent Investment Hypothesis

This study investigates the relationship between the level of institutional ownership and various firm specific factors. We find support for the hypothesis that institutional investors are concerned with the appearance of their portfolio and invest to avoid extremes. For example, institutions avoid stocks with either a high or low beta, debt ratio, or return on assets. The nonlinear relationship documented in this paper are in contrast with the conclusions reported by other recent papers