Institutional Holding, Low Beta and Idiosyncratic Volatility Anomalies

36 Pages Posted: 21 Oct 2014

See all articles by Chen Wang

Chen Wang

Yale School of Management

Date Written: May 09, 2014

Abstract

Institutional investors subject to benchmarking, short-selling and leverage constraints have asymmetric effects on both low beta and low volatility anomalies documented by previous studies. Specifically, institutional investors prefer high-beta stocks to low-beta stocks to minimize the tracking error and utilize the embedded leverage of high beta stocks, leading to low-beta anomaly. They can act as the supply source of security lending to the short-sellers, mitigating the overpricing induced negative effect on expected returns from idiosyncratic volatility. Using size effect adjusted institutional ownership as a proxy for institutional limits to arbitrage, I confirm that mandated and financial constrained institutional investors contribute positively to the low beta anomaly but mitigate the low IVOL anomaly using sorting and Fama-MacBeth regressions. I distinguish the highly correlated low beta and low volatility anomalies and find a significantly positive risk premium for institutional holding. A strong January reversal effect of idiosyncratic volatility on expected return is also documented.

Suggested Citation

Wang, Chen, Institutional Holding, Low Beta and Idiosyncratic Volatility Anomalies (May 09, 2014). Available at SSRN: https://ssrn.com/abstract=2512411 or http://dx.doi.org/10.2139/ssrn.2512411

Chen Wang (Contact Author)

Yale School of Management ( email )

165 Whitney Ave PhD Suite
New Haven, CT 06511
United States

HOME PAGE: http://chenwang.one

Register to save articles to
your library

Register

Paper statistics

Downloads
217
Abstract Views
590
rank
208,319
PlumX Metrics