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Large Foreign Ownership and Firm-Level Stock Return Volatility in Emerging Markets

Published online by Cambridge University Press:  11 April 2011

Donghui Li
Affiliation:
University of New South Wales, School of Banking and Finance, Sydney, NSW 2052, Australia, donghui@unsw.edu.au
Quang N. Nguyen
Affiliation:
Khang Thong Group, 67 Nguyen Thi Minh Khai Str., Ben Thanh Ward, District 1, Ho Chi Minh City, Vietnam, and Ho Chi Minh City Open University, quangngoc.nguyen@khangthong.vn
Peter K. Pham
Affiliation:
University of Sydney, Faculty of Economics and Business, Sydney, NSW 2006, Australia, peter.pham@sydney.edu.au
Steven X. Wei
Affiliation:
Hong Kong Polytechnic University, School of Accounting and Finance, Hung Hom, Kowloon, Hong Kong, afweix@inet.polyu.edu.hk

Abstract

This study constructs a firm-level measure of large foreign ownership (LFO) and investigates its impact on stock return volatility in 31 emerging markets. We find a negative relationship between LFO and volatility, even after controlling for potential endogeneity and the impact of major domestic shareholders. This suggests a stabilizing role of LFO in emerging markets, which is consistent with previous suggestions in the literature on the strong commitments and potential monitoring role of large foreign shareholders. Overall, our study highlights the importance of recognizing the heterogeneity among foreign investors and the benefits of large foreign shareholders to emerging stock markets.

Type
Research Articles
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2011

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