Are Pension Beneficiaries Harmed by Large Bank Trust Department Sales of Large Common Stock Positions? The Evidence

A study was conducted to provide a comparative analysis of the time taken to sell out large common stock positions by large and small bank trust departments. It was suggested that, because large institutions hold large positions in certain securities, when they eliminate one of these positions, selling should be spread over longer periods to avoid or reduce destabilizing impacts on that stock's price. It was also suggested that if an institution takes a long time to sell a single stock, long selling periods might adversely affect investment performance and thus injure that institution's beneficiaries. Position eliminations by the 20 largest reporting bank trust departments and by 20 smaller bank trust departments were examined.

The positions ultimately sold out by large bank trust departments represented a maximum of 1.3 percent of the assets being managed for pension beneficiaries, with a comparable figure of 0.4 percent for the smaller banks. A weak statistical relationship was found between the size of positions eliminated and the time taken to eliminate them. The length of time taken to sell off large positions had little, if anything, to do with the size of the position during this period. In general, prices were higher during the selling periods than at the beginning of the selling periods. There was no evidence that prices declined on large positions that were sold over long periods of time and no basis was found for concern about the potential adverse impacts on pension beneficiaries.