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Does foreign institutional ownership increase return volatility? Evidence from China

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  • Chen, Zhian
  • Du, Jinmin
  • Li, Donghui
  • Ouyang, Rui
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    Abstract

    This paper investigates the impact of foreign institutional ownership on firm-level stock return volatility in China, based on our study of a sample of 1458 firms between 1998 and 2008. The empirical results show that share ownership by foreign institutions (both financial and non-financial) increases firm-level stock return volatility, even after controlling for a complete ownership structure, firm size, turnover, and leverage, and correcting for potential endogeneity problems. However, the results also show that foreign individual shareholdings reduce volatility. Furthermore, we document a positive relationship between domestic shareholdings (individual, institutional, and governmental) and firm-level stock return volatility. Empirical results with interaction terms show that foreign institutional ownership increases firm-level return volatility by strengthening the positive impact of liquidity on volatility. The volatility reduction effect of foreign individual ownership is attenuated by government ownership suggests a poor governance environment as a result of the involvement of the Chinese government.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 37 (2013)
    Issue (Month): 2 ()
    Pages: 660-669

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    Handle: RePEc:eee:jbfina:v:37:y:2013:i:2:p:660-669

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    Web page: http://www.elsevier.com/locate/jbf

    Related research

    Keywords: Foreign ownership; Stock return volatility; China;

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