Institutional investors and stock returns volatility: Empirical evidence from a natural experiment

Martin T. Bohl; Janusz Brzeszczynski; Bernd Wilfling

doi:10.1016/j.jfs.2008.02.003

Institutional investors and stock returns volatility: Empirical evidence from a natural experiment

Martin T. Bohl, Janusz Brzeszczynski, Bernd Wilfling

Research output: Contribution to journal › Article › peer-review

54 Citations (Scopus)

Abstract

In this paper, we provide empirical evidence on the impact of institutional investors on stock market returns dynamics. The Polish pension system reform in 1999 and the associated increase in institutional ownership due to the investment activities of pension funds are used as a unique institutional characteristic. Performing a Markov-switching-GARCH analysis we find empirical evidence that the increase of institutional ownership has temporarily changed the volatility structure of aggregate stock returns. The results are interpretable in favor of a stabilizing effect on index stock returns induced by institutional investors. © 2008 Elsevier B.V. All rights reserved.

Original language	English
Pages (from-to)	170-182
Number of pages	13
Journal	Journal of Financial Stability
Volume	5
Issue number	2
DOIs	https://doi.org/10.1016/j.jfs.2008.02.003
Publication status	Published - Jun 2009

Keywords

Institutional traders
Markov-switching-GARCH model
Pension fund investors
Polish stock market
Stock market volatility

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10.1016/j.jfs.2008.02.003

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title = "Institutional investors and stock returns volatility: Empirical evidence from a natural experiment",

abstract = "In this paper, we provide empirical evidence on the impact of institutional investors on stock market returns dynamics. The Polish pension system reform in 1999 and the associated increase in institutional ownership due to the investment activities of pension funds are used as a unique institutional characteristic. Performing a Markov-switching-GARCH analysis we find empirical evidence that the increase of institutional ownership has temporarily changed the volatility structure of aggregate stock returns. The results are interpretable in favor of a stabilizing effect on index stock returns induced by institutional investors. {\textcopyright} 2008 Elsevier B.V. All rights reserved.",

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AU - Wilfling, Bernd

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AB - In this paper, we provide empirical evidence on the impact of institutional investors on stock market returns dynamics. The Polish pension system reform in 1999 and the associated increase in institutional ownership due to the investment activities of pension funds are used as a unique institutional characteristic. Performing a Markov-switching-GARCH analysis we find empirical evidence that the increase of institutional ownership has temporarily changed the volatility structure of aggregate stock returns. The results are interpretable in favor of a stabilizing effect on index stock returns induced by institutional investors. © 2008 Elsevier B.V. All rights reserved.

KW - Institutional traders

KW - Markov-switching-GARCH model

KW - Pension fund investors

KW - Polish stock market

KW - Stock market volatility

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JO - Journal of Financial Stability

JF - Journal of Financial Stability

IS - 2

ER -

Institutional investors and stock returns volatility: Empirical evidence from a natural experiment

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Keywords

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