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Idiosyncratic Volatility, Institutional Ownership, and Investment Horizon
Author(s) -
Chichernea Doina C.,
Petkevich Alex,
Zykaj Blerina Bela
Publication year - 2015
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/j.1468-036x.2013.12033.x
Subject(s) - volatility (finance) , endogeneity , economics , institutional investor , monetary economics , time horizon , investment (military) , financial economics , econometrics , finance , corporate governance , politics , political science , law
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 .