The impact of international institutional investors on local equity prices: Reversal of the size premium

Using comprehensive company-level ownership data from Japan, the authors found that the equity size premium correlates strongly with the investment flows of international institutional investors. When investment flows intensified and shifted into larger stocks in the mid-1990s, the equity size premium was reversed. Their findings suggest that a large fraction of the time variation in the size premium is driven by price pressures, regardless of any shift in the fundamentals of small and large companies.