Shareholding pattern can have great impact on share prices. Smart investors are often looking for consequences of high stake of small investors in stocks.
Generally, a high stake of high frequency traders can significantly impact stock volatility & volume. Some of the common forms of high frequency traders include large investment banks, hedge funds, mutual funds, foreign institutional investor (FII) & domestic institutional investor (DII).
According to IMF Country Report 2014, stocks with high FII flows are associated with coincidence price increase that is permanent in nature.
Similarly, stocks with low FII flows or high retail participation are associated with coincidence price decrease that is reversible in nature. Here are 10 big results or outcomes of high public shareholding pattern in stocks:
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(1) Diminished Power To Affect Share Price
It is one of the biggest consequences of high stake of small investors in stocks. A small investor or trader is best known to buy & sell few hundred shares of a stock.
It has no noticeable impact on the share price. He/she usually perform this action by placing limit order rather than market order. It further diminishes the strength of his/her order to change share price.
On the other hand, high frequency traders like hedge funds, stock brokerages, & mutual funds buy & sell stocks in large quantities. They prefer to perform block deals or bulk trades.
It provides them the power to affect the share prices significantly. Once large investors accumulate a stock, they start placing market order in the most beneficial direction to change share price.
This provides them good advantage over small retail investors. However, if these large investors are absent from a given script then the stock may remain almost dead.
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