Big institutional investors like bank trust departments have at most a "very small and infrequent" effect on stock prices through their trading activities, according to a study released today by Morgan Guaranty Trust Co. which commissioned the report.
The study was produced in response to findings presented in June to a Senate Finance Subcommittee which is considering legislation that would reduce what it considers dangerously large concentrations of equity holdings by investment managers for big pension funds.
The legislation would have a significant impact on Morgan Guaranty because it is the biggest trust and pension adviser in the country, with total trust department assets under management approaching $30 billion.
The testimony, by Georgetown Law School Professor Roy A. Schotland argued that concentrated holdings by institutions often account for a large portion of the total volume of transactions in a particular stocks, and that buying and selling by these institutions can affect the price of shares independent of othe factors such as recent developments affecting a company's earnings.
Schotland's findings were disputed in the study released today, which was prepared by David W. Miller, a statistics professor at the Columbia University Graduate School of Business. Miller, who followed bank trust transactions for nine quarters between 1975 and 1977, said possible trading effects on prices could be in only two of the quarters and these were "very small."