Institutional Investors and Stock Return Synchronicity: Evidence from Market, Industry, and Firm-Specific Information

Hsiu-I Ting and Ming-Chun Wang ()
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Hsiu-I Ting: Department of Money and Banking, National Kaohsiung First University of Science and Technology, Taiwan
Ming-Chun Wang: Department of Money and Banking, National Kaohsiung First University of Science and Technology, Taiwan

Journal of Economics and Management, 2011, vol. 7, issue 2, 285-308

Abstract: This paper examines the influence of institutional investor behavior on the stock return synchronicity using a sample of Taiwanese listed companies for the period 2000-2005. We find that stock prices reflect more firm-specific information for firms whose institutional ownerships are higher. Synchronicity is negatively associated with the number of shares held by foreign investors and securities dealers. The negative relationship suggests that the transactions of foreign investors and securities dealers increase the relative flow of firm-specific information to prices. Stock prices contain more market- and industry-level information in firms with more securities investment trust companies' shares or dominated by securities investment trust companies. The higher the change of ownership ratio of foreign investors, securities investment trust companies, and securities dealers, the lower the synchronicity is. This implies that more firm-specific information impounds into stock prices. From the simultaneous equation estimations, institutional investors and synchronicity are endogenously determined. The level of synchronicity influences the number of shares of these three parties, which in turn influences the level of synchronicity. The above results hold after considering the robustness tests of highly-market-value-weighted stocks and securities investment trust companies' strategies.

Keywords: institutional investors; stock return synchronicity (search for similar items in EconPapers)
JEL-codes: G14 G20 G30 (search for similar items in EconPapers)
Date: 2011
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