Institutional Ownership and Aggregate Volatility Risk
55 Pages Posted: 10 Nov 2009 Last revised: 12 Jan 2017
Date Written: August 14, 2016
The paper shows that the difference in aggregate volatility risk can explain why several anomalies are stronger among the stocks with low institutional ownership (IO). Institutions tend to stay away from the stocks with extremely low and extremely high levels of firm-specific uncertainty because of their desire to hedge against aggregate volatility risk or exploit their competitive advantage in obtaining and processing information, coupled with the dislike of idiosyncratic risk. Thus, the spread in uncertainty measures is wider for low IO stocks, and the same is true about the differential in aggregate volatility risk.
Keywords: Aggregate Volatility Risk, Institutional Ownership, Value Effect, Idiosyncratic Volatility Discount, Turnover Effect, Analyst Disagreement Effect, Anomalies
JEL Classification: G12, G14, G23, E44, D80
Suggested Citation: Suggested Citation