Does Institutional Ownership Matter for International Stock Return Comovement?
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)
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)
October 13, 2010
Paris December 2011 Finance Meeting EUROFIDAI - AFFI
AFA 2013 San Diego Meetings Paper
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.
Number of Pages in PDF File: 43
Keywords: Institutional investors, Comovements, International diversification, International capital markets
JEL Classification: F36, G11, G15
Date posted: October 13, 2011 ; Last revised: June 14, 2015