This paper examines the impact of institutional investors on stock prices and returns in the U.S. equity market. The authors find that "large" institutional investors, defined as those with over $100 million under discretionary control, have significantly increased their share of the common-stock market from 1980 to 1996, driven primarily by the growth in holdings of the largest one-hundred institutions. These large institutions prefer stocks with higher market capitalizations, greater liquidity, higher book-to-market ratios, and lower returns for the previous year. The paper discusses how these preferences, combined with the rising share of the market held by institutions, influence the relative prices and returns of large and small stocks. Empirical evidence supports the in-sample implications for prices and realized returns, and the authors derive out-of-sample predictions for expected returns. The analysis also highlights the role of investor clientele in explaining changes in asset prices.This paper examines the impact of institutional investors on stock prices and returns in the U.S. equity market. The authors find that "large" institutional investors, defined as those with over $100 million under discretionary control, have significantly increased their share of the common-stock market from 1980 to 1996, driven primarily by the growth in holdings of the largest one-hundred institutions. These large institutions prefer stocks with higher market capitalizations, greater liquidity, higher book-to-market ratios, and lower returns for the previous year. The paper discusses how these preferences, combined with the rising share of the market held by institutions, influence the relative prices and returns of large and small stocks. Empirical evidence supports the in-sample implications for prices and realized returns, and the authors derive out-of-sample predictions for expected returns. The analysis also highlights the role of investor clientele in explaining changes in asset prices.