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Do institutional investors stabilize stock returns? Evidence from emerging IPO markets

Author

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  • Konpanas Dumrongwong

Abstract

Purpose - The purpose of this paper is to investigate how institutional ownership is related to the stock return volatility of initial public offerings (IPOs) in an emerging market and to examine the relationship between institutional ownership and underpricing. Design/methodology/approach - This paper investigates these relationships using White’s (1980) regression and 2 × 3 portfolios sorted by firm size and institutional holdings. The regression method examines the relationships across firms with different characteristics such as size, stock price, growth potential, firm age and type of investors. The data were chosen for this sample to cover the new equity issuances listed on the Thailand Stock Exchange for the period 2001–2019. Findings - The empirical results suggest that institutional ownership is negatively associated with initial stock return volatility. This highlights the importance of institutional investors in maintaining stability in emerging stock markets. Additionally, it was found that institutional holding and underpricing are negatively correlated. The results are robust after controlling for potential heteroskedasticity and differences in firm characteristics. Originality/value - To the best knowledge of the author, this paper is the first to study the relationship between institutional investors and volatility in Thai IPOs, and hence provides a deeper understanding of how investors influence the price formation and volatility of stock prices in emerging markets. Furthermore, besides academics, the results presented in this paper could be useful for market regulators and policymakers in designing future market regulations to efficiently stabilize equity markets.

Suggested Citation

  • Konpanas Dumrongwong, 2020. "Do institutional investors stabilize stock returns? Evidence from emerging IPO markets," Pacific Accounting Review, Emerald Group Publishing Limited, vol. 32(4), pages 585-600, November.
  • Handle: RePEc:eme:parpps:par-11-2019-0145
    DOI: 10.1108/PAR-11-2019-0145
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    Citations

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    Cited by:

    1. Huang, Wenli & Zhu, Yuanhao & Li, Shi & Xu, Yueling, 2024. "Institutional investor heterogeneity and systemic financial risk: Evidence from China," Research in International Business and Finance, Elsevier, vol. 68(C).

    More about this item

    Keywords

    Volatility; Institutional investors; Information asymmetry; G14; G23; G32;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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