Idiosyncratic Volatility, Institutional Ownership, and Investment Horizon

European Financial Management, Forthcoming

54 Pages Posted: 13 Oct 2012 Last revised: 9 Aug 2014

See all articles by Doina Chichernea

Doina Chichernea

University of Denver - Reiman School of Finance

Alex Petkevich

The University of Toledo - Department of Finance

Blerina Bela Zykaj

Clemson University

Date Written: July 18, 2013

Abstract

This paper reevaluates the cross-sectional effect of institutional ownership on idiosyncratic volatility by conditioning on institutions’ investment horizon. Prior literature establishes a positive link between growing institutional ownership and idiosyncratic volatility. However, this effect may vary depending on the type of institutional ownership. We document that short-term (long-term) institutional ownership is positively (negatively) linked to idiosyncratic volatility in the cross section. These opposite effects persist after controlling for institutional preferences and information-based trading and remain qualitatively unchanged after controlling for endogeneity. This suggests that short-term (long-term) institutions exhibit higher (lower) trading activity, which increases (decreases) idiosyncratic volatility.

Keywords: institutional investors, idiosyncratic volatility, investment horizon, trading preferences.

JEL Classification: G12, G23

Suggested Citation

Chichernea, Doina and Petkevich, Alex and Zykaj, Blerina Bela, Idiosyncratic Volatility, Institutional Ownership, and Investment Horizon (July 18, 2013). European Financial Management, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2160825 or http://dx.doi.org/10.2139/ssrn.2160825

Doina Chichernea

University of Denver - Reiman School of Finance ( email )

2101 S. University Blvd
Denver, CO 80208
United States

Alex Petkevich

The University of Toledo - Department of Finance ( email )

2801 W. BANCROFT ST.
Mail Stop 103
Toledo, OH Ohio 43606
United States

HOME PAGE: http://homepages.utoledo.edu/apetkev

Blerina Bela Zykaj (Contact Author)

Clemson University ( email )

Department of Finance
Clemson, SC 29634
United States
864-656-0074 (Phone)

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