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

Bohl, Martin T.; Brzeszczyński, Janusz; Wilfling, Bernd

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.

Citation

Bohl, M. T., Brzeszczyński, J., & Wilfling, B. (2009). Institutional investors and stock returns volatility: Empirical evidence from a natural experiment. Journal of Financial Stability, 5(2), 170-182. https://doi.org/10.1016/j.jfs.2008.02.003

• Journal Article Type: Article
• Acceptance Date: Feb 25, 2008
• Online Publication Date: Mar 6, 2008
• Publication Date: 2009-06
• Deposit Date: Apr 2, 2025
• Journal: Journal of Financial Stability
• Print ISSN: 1572-3089
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 5
• Issue: 2
• Pages: 170-182
• DOI: https://doi.org/10.1016/j.jfs.2008.02.003
• Keywords: Institutional traders, Polish stock market, Pension fund investors, Stock market volatility, Markov-switching-GARCH model
• Public URL: http://researchrepository.napier.ac.uk/Output/4228650