The Role of Institutional Investors in Stock Market.
                     The Role of Institutional 
Investors in Stock 
Market
Institutional Investor
• An institutional investor is a legal entity that accumulates the 
funds of numerous investors to invest in various financial 
instruments and profit from the process. 
Source: corporatefinanceinstitute.com
Types of Institutional Investors
• There are several types of institutional investors, such as:
– Banks – Hedge funds
– Credit unions – Venture capital funds
– Pension funds – Mutual funds
– Insurance companies – Real estate investment trusts
Source: corporatefinanceinstitute.com
Characteristics of Institutional Investors
• It is always a legal entity, and it is important to understand that an 
institutional investor is an enterprise managing a fund, but not the 
mutual fund itself.
• An institutional investor always manages a significant number of 
funds.
Source: corporatefinanceinstitute.com
The Role of Institutional Investors
• Institutional investors access large operational activities due to 
corporate opportunities. 
• With substantial capital and licensing, large institutions secure access 
to many assets that are not available to private individuals.
Source: corporatefinanceinstitute.com
Risks in Institutional Investing
• Permanent risks of non-compliance with the legal rights of 
shareholders. 
• They include a lack of qualified, experienced appraisers and a lack of a 
clear and well-established policy on the payments of dividends.
Source: corporatefinanceinstitute.com
Timeframes for Investments
• Institutional investors don’t all buy or sell the same asset classes at 
the same time. 
• To the contrary, they have a wide variety of distinct goals, strategies, 
and timeframes for their investments. 
Source: corporatefinanceinstitute.com
Impact of Institutional Investors
• Institutional investors exert a large influence on the price dynamics of 
different financial instruments.
• The presence of large financial groups in the market creates a positive 
effect on overall economic conditions.
Source: corporatefinanceinstitute.com
Dominant market players
• Institutional investors are dominant market players, but it is difficult 
to fit them into any category. 
• This poses a challenge for regulators, who must consider all the many 
ways institutional investors operate, and interact, with the capital 
markets.
Source: corpgov.law.harvard.edu
Improve price discovery
• Institutional investors are known to improve price discovery, increase 
allocative efficiency, and promote management accountability. 
• They aggregate the capital that businesses need to grow and provide 
trading markets with liquidity the lifeblood of our capital markets.
Source: corpgov.law.harvard.edu
Fair and intelligent regulation 
•  institutional investors like all investors depend on the assurance of a 
level playing field, access to complete and reliable information, and 
the ability to exercise their rights as shareowners. 
• That is why fair and intelligent regulation is necessary for the proper 
functioning of our stock markets.
Source: corpgov.law.harvard.edu