Institutional investors have significantly increased their share of the U.S. equity market from 1980 to 1996, with the largest institutions holding over half of the market by 1996. These institutions prefer larger, more liquid stocks with higher book-to-market ratios and lower returns. Their preferences have influenced stock prices and returns, with large stocks outperforming small stocks in both price and return. The paper analyzes how institutional ownership affects stock prices and returns, finding that institutional preferences for certain stock characteristics have remained stable over time. The results suggest that institutional investors have a strong preference for large, liquid stocks, and that this preference has contributed to the relative price appreciation of large stocks and the disappearance of the small-company return premium. The paper also provides evidence that institutional ownership has forecasting power for excess returns. The analysis uses a partial-equilibrium model to estimate the impact of institutional ownership on stock prices and returns, finding a downward-sloping demand curve with an elasticity of -5.3. The results support the role of investor clienteles in explaining changes in asset prices. The paper concludes that institutional investors have a significant influence on stock market prices and returns, and that their preferences for certain stock characteristics have contributed to the relative price appreciation of large stocks and the disappearance of the small-company return premium.Institutional investors have significantly increased their share of the U.S. equity market from 1980 to 1996, with the largest institutions holding over half of the market by 1996. These institutions prefer larger, more liquid stocks with higher book-to-market ratios and lower returns. Their preferences have influenced stock prices and returns, with large stocks outperforming small stocks in both price and return. The paper analyzes how institutional ownership affects stock prices and returns, finding that institutional preferences for certain stock characteristics have remained stable over time. The results suggest that institutional investors have a strong preference for large, liquid stocks, and that this preference has contributed to the relative price appreciation of large stocks and the disappearance of the small-company return premium. The paper also provides evidence that institutional ownership has forecasting power for excess returns. The analysis uses a partial-equilibrium model to estimate the impact of institutional ownership on stock prices and returns, finding a downward-sloping demand curve with an elasticity of -5.3. The results support the role of investor clienteles in explaining changes in asset prices. The paper concludes that institutional investors have a significant influence on stock market prices and returns, and that their preferences for certain stock characteristics have contributed to the relative price appreciation of large stocks and the disappearance of the small-company return premium.