Who Blinks in Volatile Markets, Individuals or Institutions?

We investigate the relationship between ownership structure and the volume of trade and returns of firms on days where the absolute value of the market's return is large, defined to be two percent or more. We find three main results. First, there is an abnormally high turnover in firm's shares on these days, and this abnormal turnover is positively related to the percentage of institutional ownership in a firm. Second, the magnitude of a firm's return on these days is related to the percentage of institutional ownership. Last, we decompose insitutional ownership in ownership by mutual funds and ownership by other insitutions, and find that both the statistical and economic significance of mutual fund ownership is higher than other types of insitutional ownership in explaining these results. Taken together, these results are consistent with positive feedback herding behavior on the part of insitutions, particularly mutual funds