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Foreign institutional investors and stock return comovement

Author

Listed:
  • Li Jiang

    (Hong Kong Polytechnic University)

  • Jeong-Bon Kim

    (City University of Hong Kong)

  • Lei Pang

    (Hang Seng Investment Management)

Abstract

We investigate whether foreign institutional investors facilitate firm-specific information flow in the global market. Specifically, using annual institutional ownership data from firms across 40 countries, we find that foreign institutional ownership is negatively associated with excess stock return comovement. Our results are more pronounced when foreign institutional investors originate from common-law countries and hold a large equity stake in invested firms; and when the invested firms are located in civil-law countries. Overall, the evidence suggests that foreign institutional investors from countries with strong investor protection play an important informational role in mitigating excess stock return comovement around the world.

Suggested Citation

  • Li Jiang & Jeong-Bon Kim & Lei Pang, 2018. "Foreign institutional investors and stock return comovement," Frontiers of Business Research in China, Springer, vol. 12(1), pages 1-31, December.
    • Handle: RePEc:spr:fobric:v:12:y:2018:i:1:d:10.1186_s11782-018-0036-8
    DOI: 10.1186/s11782-018-0036-8
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    3. Yajie Chen & Qinlin Zhong & Fuxiu Jiang, 2020. "The capital market spillover effect of product market advertising: Evidence from stock price synchronicity," Frontiers of Business Research in China, Springer, vol. 14(1), pages 1-21, December.

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    More about this item

    Keywords

    Foreign institutional investors; Stock return comovement; Firm-specific information; Investor protection;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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