The Investor-Base Hypothesis of Stock Return Volatility: Empirical Evidence

36 Pages Posted: 2 Jun 2016

See all articles by Håkan Jankensgård

Håkan Jankensgård

Lund University - Department of Business Administration; Knut Wicksell Centre for Financial Studies

Anders Vilhelmsson

Lund University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: June 1, 2016

Abstract

A conjecture in the literature holds that a large and diversified investor base leads to lower volatility by improving the quality of the price signal. In this paper this hypothesis is examined using unique Swedish ownership data. The data does not support the conjecture. Instead, volatility increases in the number of investors and in the size of the firm’s micro-float (the fraction of shares held by investors with stakes below 0.1%). In separate regressions we show that trading volume increases in the size of the investor base, suggesting a trading channel explanation. We also show that proxies for the portfolio concentration of the largest owners are important. We conclude that ownership structure has major implications for stock return volatility.

Keywords: Volatility, ownership, investor base, portfolio concentration

JEL Classification: G1, G30, G32

Suggested Citation

Jankensgård, Håkan and Vilhelmsson, Anders, The Investor-Base Hypothesis of Stock Return Volatility: Empirical Evidence (June 1, 2016). Available at SSRN: https://ssrn.com/abstract=2788166 or http://dx.doi.org/10.2139/ssrn.2788166

Håkan Jankensgård (Contact Author)

Lund University - Department of Business Administration ( email )

Box 117
SE-221 00 Lund, S-220 07
Sweden

Knut Wicksell Centre for Financial Studies ( email )

Box 7080
Lund, SE-220 07
Sweden

Anders Vilhelmsson

Lund University - Department of Economics ( email )

Lund
Sweden

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