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

Author

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  • Yu Hu
  • Xiaoquan Jiang
  • Wenjun Xue

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.

Suggested Citation

  • Yu Hu & Xiaoquan Jiang & Wenjun Xue, 2022. "The relationship between institutional ownership and idiosyncratic volatility: evidence from the stock markets of China and the USA," International Journal of Emerging Markets, Emerald Group Publishing Limited, vol. 19(9), pages 2549-2573, November.
    • Handle: RePEc:eme:ijoemp:ijoem-04-2022-0710
    DOI: 10.1108/IJOEM-04-2022-0710
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    More about this item

    Keywords

    Institutional ownership; Idiosyncratic volatility; Chinese stock market; U.S. stock market; G10; G15; G23;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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