Three Essays in Volatility

ABSTRACTIn this study, we examine the effect of institutional ownership on corporate philanthropy in China, an emerging economy. Employing stakeholder identification and salience theory, we posit that institutional ownership positively influences corporate philanthropy, which varies for different types of institutional investors. We further argue that institutional ownership's influence is stronger when philanthropy is aligned with firm goals. Using data from Chinese publicly listed firms, we find a positive effect of institutional ownership on philanthropy, and this effect is stronger for domestic institutional owners when compared to foreign institutional owners, and long-term when compared to short-term institutional owners. We also find that the positive influence of institutional ownership is stronger in private firms and in regions with low institutional development – situations characterizing high alignment between philanthropy and firm goals. Our findings highlight the important role of institutional investors on corporate philanthropy decisions, which have implications for scholars studying and policy makers enacting corporate governance in emerging economies.

Stochastic Idiosyncratic Operating Risk and Real Options: Implications for Stock Returns

Purpose– The purpose of this paper is to ascertain whether different types of institutional investor in Malaysia are involved in the corporate governance of their investee companies, and, if yes, to what extent is the level of the involvement.Design/methodology/approach– A qualitative approach, consisting of a series of interviews with 18 senior investment managers of different types of institutional investor, was chosen.Findings– The findings suggest that lessons learnt from the fallout of the Asian crisis has made Malaysian institutional investors not only to be more prudent in managing their total funds and in making equities investment decisions, but has resulted in a more active participation in their “core” investee companies apart from merely discharging their voting rights. Interview analysis revealed that government-linked investment companies are championing the cause and could possibly affect the overall level of institutional investors’ involvement, which bode well for the future of the corporate governance system of the country.Research limitations/implications– Generalisations may be an issue when interviews are used as the method of inquiry. Also, the sample is not random, as access to many managers depended on recommendations. In addition, respondents were consciously selected to obtain different types of institutional investors that included government and non-government linked.Originality/value– There is a lack of work on studying the involvement of institutional investors in developing countries, whereby previous work and literature review were predominantly based upon the experience of Western economies.

Investor Overconfidence and the Increase in Idiosyncratic Risk

Idiosyncratic volatility generates a lot of interest in literature, as there are conflicting evidences regarding the relationship between stocks’ idiosyncratic volatility and future returns. In this paper, we re-investigate this relationship. We argue that the impact of idiosyncratic volatility on stock return is contextual, i.e., depending on the stocks’ attributes. We focus on stocks’ quality measures. We hypothesize that for companies with high quality measures, the idiosyncratic volatility would have a positive impact on stock return, as it is more likely to be idiosyncratic volatilities on the good side, while on the other hand, for companies with bad qualities, higher idiosyncratic volatility might lead to negative return, as these companies are facing larger default probabilities due to their higher idiosyncratic volatilities. Our empirical results show that within our expectations, for stocks with higher quality measures there is a positive and significant relationship between stocks’ future return and their idiosyncratic volatility, while the story for stocks with lower quality measures is mixed. Our research will contribute to the idiosyncratic volatility literature by providing a thorough and conditional analysis about its impact on stock returns. It will also provide insights for the investors who wish to better understand the impact of idiosyncratic volatility on future stock return and, thus, are able to make better investment decisions.

Stakeholder theory suggests that institutional investors, as firms' vital stakeholders, might play a crucial role in influencing firms' green innovation. Considering both the shareholding and portfolio characteristics of institutional investors, we investigate the effects of different types of institutional investors with various supervisory motivations and governance capabilities on firms' green innovation. Importantly, we also explore which types of institutional investors become the driving force behind firms' green innovation. Furthermore, we consider how various aspects of financial and social benefits as contingencies affect the relationship between different types of institutional investors and firms' green innovation. Based on 5473 observations of Chinese manufacturing firms from 2013 to 2019, we find that, when considering institutional investors' effects on firms' green innovation, it is better to simultaneously consider both the shareholding and portfolio characteristics of institutional investors than to consider only one or the other. Dedicated institutional investors with more shareholding independence and higher portfolio concentration are positively associated with green innovation and are the driving force behind it, while transient institutional investors are not. However, institutional investors' effects on green innovation will change because of contingencies related to firms' financial and social benefits, generally presenting the characteristics of “pursuing benefits and avoiding risks.” Specifically, dedicated institutional investors promote green innovation for firms with satisfactory financial and social benefits to pursue long‐term benefits but do not have significant effects on the green innovation of firms with general or unsatisfactory financial and social benefits. By contrast, transient institutional investors are inclined to hinder green innovation for firms with unsatisfactory financial and social benefits to avoid short‐term risks; at the same time, they have insignificant effects on the green innovation of firms with satisfactory or general financial and social benefits.

Is There a Volatility Puzzle in the Hong Kong Stock Market?

Heterogeneous institutional preferences and informativeness: Evidence from China

The Information Content of Idiosyncratic Volatility

PurposeThis paper discusses whether institutional investors change the shareholding ratio of listed companies through research meeting, and whether this active investment mode can really improve the investment efficiency of institutional investors.Design/methodology/approachUsing empirical research method, this study designs and conducts an empirical research according to empirical research's basic norms. Thus, we acquire needed and credible empirical data. This study analyzes whether institutional investors seek their private interest in researched companies by analyzing their research meetings and the shareholding ratios of different types of institutional investors using Shenzhen Stock Exchange data on listed firms from 2014 to 2018.FindingsThis study finds that the research meetings of institutional investors provide participants with reliable information which supports the decision of institutional investors to change their shareholding ratio. The stock price growth rate strengthens the positive correlation between the research meetings of institutional investors and the shareholding ratio of institutional investors. Additionally, transactional institutional investors increase the shareholding ratio, while holding institutional investors do not.Originality/valueThis paper combines the behavior of institutional investors with the holding status of institutional investors, and discusses the impact of institutional investors' behavior on investment decisions. At the same time, it classifies the institutional investors and discusses the attitude of different types of institutional investors towards this active investment mode.

Growth Options and Firm Valuation

Ambiguity, Macro Factors, and Stock Return Volatility

This paper investigates the relationship between institutional ownership and firm-level idiosyncratic volatility across European equity markets, with a particular focus on the moderating role of dividend policy. Using a sample of STOXX Europe 600 constituents from 2005 to 2025, we estimate idiosyncratic volatility via the Fama-French three-factor model and employ fixed-effects regressions with clustered standard errors. Our empirical results reveal a positive and statistically significant association between institutional ownership and idiosyncratic volatility, suggesting a destabilizing rather than stabilizing role in European markets. This volatility-enhancing effect is significantly more pronounced among dividend-paying firms and is primarily driven by transient institutional investors with high portfolio turnover. Furthermore, we find that: (1) larger firm size (market capitalization) and higher leverage (debt-to-capital ratio) are positively associated with heightened volatility; (2) growth-oriented firms (high market-to-book ratios) exhibit increased volatility, particularly among non-dividend payers; and (3) higher profitability (ROE) and favorable analyst coverage (buy recommendations) act as stabilizers, reducing idiosyncratic risk. These findings persist in both contemporaneous and lagged specifications. This study contributes to the literature by identifying dividend policy as a key channel through which institutional trading behavior amplifies firm-specific risk, providing novel evidence on the asset class effect within major European benchmark indices.

Institutional Ownership, Volatility and Dividends

Short-term institutional investors and agency costs of debt