Impact of Institutional Trading Strategies on Market Microstructure

In the context of equity market structure, market microstructure theory explores how specific trading mechanisms affect the price formation process and liquidity. A recent study on the trading behavior of institutional investors revealed key findings relevant to the market's liquidity dynamics. The study indicated that institutional trades tend to be less liquid than retail trades, particularly in small-cap stocks, due to the larger sizes and potential impact of their transactions. Moreover, the execution strategies employed, such as working orders and time-weighted average price (TWAP) strategies, significantly influenced the final execution price.

Given these insights, which of the following statements about market microstructure is most likely correct?