Institutional Investor Behavior in X-Capm

Abstract

This study aims to model institutional investor behavior in the XCAPM model under the premise of reflecting a more detailed decomposition of investor types in equity markets. We explore the behavior and its impact in the model, esp. on pricing and on key financial ratios. We observe that the prevalence of the institutional investor counteracts extrapolator’s effects, resulting in lower volatility of price dividend ratio, lower predictive power of changes in consumption for future price changes and lower equity premium