Does Institutional Ownership Matter for International Stock Return Comovement?

43 Pages Posted: 13 Oct 2011 Last revised: 14 Jun 2015

José Faias

Catholic University of Portugal (UCP)

Miguel A. Ferreira

Nova School of Business and Economics; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Pedro Santa-Clara

New University of Lisbon - Nova School of Business and Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Pedro P. Matos

University of Virginia - Darden School of Business; European Corporate Governance Institute (ECGI)

Date Written: October 13, 2010

Abstract

We study the link between international stock return comovements and institutional investment. We test the hypothesis that the rise of institutional investors as shareholders of corporations worldwide has increased cross-country correlations and decreased cross-industry correlations. Using stock-level institutional holdings across 45 countries during the period 2001-2010, we find that industry and global factors are relatively more important than country factors in explaining stock return variation among stocks with higher institutional ownership. Industry diversification strategies offer more benefits than country diversification benefits for stocks with high institutional ownership. Our findings show that cross-border portfolio investment is a powerful force of international capital markets integration and convergence of asset prices across countries.

Keywords: Institutional investors, Comovements, International diversification, International capital markets

JEL Classification: F36, G11, G15

Suggested Citation

Faias, José and Ferreira, Miguel A. and Santa-Clara, Pedro and Matos, Pedro P., Does Institutional Ownership Matter for International Stock Return Comovement? (October 13, 2010). Paris December 2011 Finance Meeting EUROFIDAI - AFFI; AFA 2013 San Diego Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1943474 or http://dx.doi.org/10.2139/ssrn.1943474

José Faias (Contact Author)

Catholic University of Portugal (UCP) ( email )

Palma de Cima
Lisboa, 1649-023
Portugal

Miguel Almeida Ferreira

Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Pedro Santa-Clara

New University of Lisbon - Nova School of Business and Economics ( email )

Lisbon
Portugal

HOME PAGE: http://docentes.fe.unl.pt/~psc/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Pedro P. Matos

University of Virginia - Darden School of Business ( email )

University of Virginia
P.O. Box 6550
Charlottesville, VA 22906-6550
United States

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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