Document Type



Doctor of Philosophy (PhD)


Business Administration

First Advisor's Name

Xiaoquan Jiang

First Advisor's Committee Title

Committee Chair

Second Advisor's Name

Prasad Bidarkota

Second Advisor's Committee Title

Committee Member

Third Advisor's Name

Mustafa Caglayan

Third Advisor's Committee Title

Committee Member

Fourth Advisor's Name

Qiang Kang

Fourth Advisor's Committee Title

Committee Member


return volatility, institutional ownership

Date of Defense



For a typical firm, idiosyncratic volatility is as sensitive to the relative value of assets in place as to growth options. However, for firms dominated by assets in place (growth options), idiosyncratic volatility is more sensitive to the relative value of assets in place (growth options). Binding irreversibility constraint (uncertainty) makes the effect of assets in place (growth options) more pronounced.

The institutional ownership in China’s (the U.S.) stock market is positively (negatively) related to idiosyncratic volatility. Our dynamic tests show two-way Granger-causality between institutional ownership and idiosyncratic volatility in the U.S. and one-way Granger-causality in China. It indicates that institutional investors behave differently in the U.S. and China. Stock characteristics are important factors which affect idiosyncratic volatility associated with institutional holding. Our findings are robust to controlling for the financial crisis period, proportions of institutional ownership, long-term and short-term institutional ownership, and different types of institutional investors.

Using Sims' two-sided regression approach, we show that 1) there is bidirectional causality between institutional ownership and stock return volatility and 2) not accounting for the feedback effects from institutional ownership to return volatility yields the opposite institutional preferences on volatility. Subsequent analyses reveal that (surprisingly) prudence plays a role in institutions' preference on return volatility. But we fail to find support for the informational advantage argument in the literature. Lastly, we find weak evidence in the importance of growth opportunities in institutions' preferences on volatility.




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Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.



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