Does Institutional Ownership Matter for International Stock Return Comovement?

Does Institutional Ownership Matter for International Stock Return Comovement?

José Faias, Miguel Ferreira

Series number :

Serial Number: 
465/2016

Date posted :

March 01 2016

Last revised :

April 05 2016
SSRN Share

Keywords

  • institutional investors • 
  • comovements • 
  • international diversification • 
  • international capital markets

We study the link between international stock return comovements and institutional investment. We test whether the rise of institutional ownership has increased cross-country correlations and decreased cross-industry correlations.

Using stock-level institutional holdings across 45 countries during the 2001-2010 period, we find that industry and global factors are relatively more important than country factors in explaining stock return variation among stocks with higher institutional ownership. Industry diversification strategies are more beneficial than country diversification strategies for stocks with high institutional ownership. We show that cross-border portfolio investment is a powerful force of international capital market integration and convergence of asset prices.

Authors

Real name:
José Faias