Trading Behavior of Institutional Investors in Volatile Markets

We examine the behavior of institutional investors in response to extreme market fluctuations in the Iranian stock market. Specifically, we examine whether institutional investors engage in herding and follow the market, or are contrarian traders and provide liquidity during market turmoil. We examine the relationship between institutional investors' ownership percentage, stock returns, and volume in severe market fluctuations. We also explore the relationship between institutional ownership and stock returns for different types of institutional investors, including insurance, mutual fund, and investment companies. Using the daily data of listed companies from 2009 to 2019, we find that institutional investors trade against the direction of the market during market turmoil and provide liquidity for stocks in which they are a blockholder or the controlling owner. We find no evidence of herd behavior among institutional investors.