Large Foreign Ownership and Firm-Level Stock Return Volatility in Emerging Markets

46 Pages Posted: 23 Mar 2010 Last revised: 21 Sep 2010

See all articles by Donghui Li

Donghui Li

UNSW Australia Business School, School of Banking and Finance

Quang N. Nguyen

VietFund Management (VFM)

Peter K. Pham

Australian School of Business - University of New South Wales; Financial Research Network (FIRN)

Steven X. Wei

Hong Kong Polytechnic University

Date Written: March 17, 2010

Abstract

This study constructs a firm-level measure of large foreign ownership (LFO) and investigates its impact on stock return volatility in 31 emerging markets. We find a negative relationship between LFO and volatility, even after controlling for potential endogeneity and the impact of major domestic shareholders. This suggests a stabilizing role of LFO in emerging markets, which is consistent with previous suggestions in the literature on the strong commitments and potential monitoring role of large foreign shareholders. Overall, our study highlights the importance of recognizing the heterogeneity among foreign investors and the benefits of large foreign shareholders to emerging stock markets.

Suggested Citation

Li, Donghui and Nguyen, Quang N. and Pham, Peter Kien and Wei, Steven X., Large Foreign Ownership and Firm-Level Stock Return Volatility in Emerging Markets (March 17, 2010). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming, Available at SSRN: https://ssrn.com/abstract=1573875 or http://dx.doi.org/10.2139/ssrn.1573875

Donghui Li

UNSW Australia Business School, School of Banking and Finance ( email )

Sydney, NSW 2052
Australia

Quang N. Nguyen

VietFund Management (VFM) ( email )

10th Floor, Central Plaza
17 Le Duan, District 1
Ho Chi Minh City, Hanoi
Vietnam

Peter Kien Pham

Australian School of Business - University of New South Wales ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Steven X. Wei (Contact Author)

Hong Kong Polytechnic University ( email )

Hung Hom, Kowloon
Hong Kong
(852)27667056 (Phone)
(852)23309845 (Fax)

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