Idiosyncratic Volatility, Institutional Ownership, and Investment Horizon
European Financial Management, Forthcoming
54 Pages Posted: 13 Oct 2012 Last revised: 21 May 2014
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: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
By Javier Mencia and Enrique Sentana
-
Idiosyncratic Return Volatility in the Cross-Section of Stocks
By Namho Kang, Peter Kondor, ...
-
Investor Horizons and Corporate Cash Holdings
By Jarrad Harford, Ambrus Kecskes, ...
-
Changing Institutional Preferences for Stocks: Direct and Indirect Evidence
By Marshall E. Blume and Donald B. Keim
-
By Gazi Salah Uddin, Mohamed El Hedi Arouri, ...