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Foreign institutional investors and stock return comovement |
Li Jiang1(), Jeong-Bon Kim2, Lei Pang3 |
1. School of Accounting and Finance, Hong Kong Polytechnic University, Hong Kong, China 2. Department of Accountancy, City University of Hong Kong, Hong Kong, China 3. Hang Seng Investment Management, Hong Kong, China. |
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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.
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Keywords
Foreign institutional investors
Stock return comovement
Firm-specific information
Investor protection
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Issue Date: 15 October 2018
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