Institutional Investors and Stock Returns Volatility: Empirical Evidence from a Natural Experiment

17 Pages Posted: 17 Feb 2005

See all articles by Martin T. Bohl

Martin T. Bohl

University of Muenster

Janusz Brzeszczynski

Newcastle Business School (NBS), Northumbria University, Newcastle upon Tyne, United Kingdom

Bernd Wilfling

Westfälische Wilhelms-Universität

Date Written: February 15, 2005

Abstract

In this paper, we provide empirical evidence on the impact of institutional investors on stock market returns dynamics. The Polish pension system reform in 1999 and the associated increase in institutional ownership due to the investment activities of pension funds are used as a unique institutional characteristic. Performing a Markov-switching-GARCH analysis we find empirical evidence that the increase of institutional ownership has temporarily changed the volatility structure of aggregate stock returns. However, the findings do not support the hypothesis that institutional investors have destabilized stock prices. The results are interpretable in favor of a stabilizing effect on index stock returns induced by institutional investors.

Keywords: Institutional traders, Polish stock market, pension fund investors, stock market volatility, Markov-switching-GARCH model

JEL Classification: C32, G14, G23

Suggested Citation

Bohl, Martin T. and Brzeszczynski, Janusz and Wilfling, Bernd, Institutional Investors and Stock Returns Volatility: Empirical Evidence from a Natural Experiment (February 15, 2005). Available at SSRN: https://ssrn.com/abstract=668324 or http://dx.doi.org/10.2139/ssrn.668324

Martin T. Bohl (Contact Author)

University of Muenster ( email )

Schlossplatz 2
D-48149 Muenster, D-48149
Germany

Janusz Brzeszczynski

Newcastle Business School (NBS), Northumbria University, Newcastle upon Tyne, United Kingdom ( email )

Department of Accounting and Financial Management
City Campus East
Newcastle upon Tyne, NE1 8ST
United Kingdom

Bernd Wilfling

Westfälische Wilhelms-Universität ( email )

Professur für Empirische Wirtschaftsforschung
Am Stadtgraben 9
Münster, 48143
Germany
+49 - 251 - 83 25040 (Phone)
+49 - 251 - 83 25042 (Fax)

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