The relationship between institutional ownership and idiosyncratic volatility: evidence from the stock markets of China and the USA

Yu Hu, Xiaoquan Jiang and Wenjun Xue

International Journal of Emerging Markets, 2022, vol. 19, issue 9, 2549-2573

Abstract: Purpose - This paper investigates the relationship between institutional ownership and idiosyncratic volatility in Chinese and the USA stock markets and explores the potential explanations. Design/methodology/approach - In this paper, the authors use the panel data regressions and the dynamic tests of two-way Granger causality in the panel VAR model to examine the relationship between institutional ownership and idiosyncratic volatility in Chinese and the USA stock markets. Findings - The authors find that the institutional ownership in the Chinese (the USA) stock market is significantly and positively (negatively) related to idiosyncratic volatility through various tests. This paper indicates that institutional investors in the USA are more prudent and risk-averse, while the Chinese institutional investors are not because of high risk-bearing capacity. Originality/value - This paper deepens the authors’ understanding on the relationship between institutional ownership and idiosyncratic volatility and in the USA and the Chinese stock markets. This paper explains the opposite relationships between institutional ownership and idiosyncratic volatility in the stock markets in China and USA.

Keywords: Institutional ownership; Idiosyncratic volatility; Chinese stock market; U.S. stock market; G10; G15; G23 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijoemp:ijoem-04-2022-0710

DOI: 10.1108/IJOEM-04-2022-0710

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