Institutional investor network and idiosyncratic volatility of stocks

This paper constructs an institutional investor network based on the heavy holdings of the same stock in China and conducts a social network analysis to investigate the influence of this network on stock price volatility from the perspectives of network structure (density) and location (centrality)....

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Bibliographic Details
Published in:Economics and politics 2024-11, Vol.36 (3), p.1261-1288
Main Authors: Zhai, Xiaoying, Ma, Huiping, Zhang, Yongmin, Wang, Peijun, Toh, Moau Yong
Format: Article
Language:English
Subjects:
Arbitrage
Asymmetric information
Density
idiosyncratic volatility
Institutional investments
institutional investor network
Investors
Markets
Network centrality
network density
Ownership
Prices
Robustness
Social network analysis
Stock prices
Stocks
Volatility
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Summary:This paper constructs an institutional investor network based on the heavy holdings of the same stock in China and conducts a social network analysis to investigate the influence of this network on stock price volatility from the perspectives of network structure (density) and location (centrality). The study demonstrates that institutional investor network density is negatively related to stock price volatility, while network centrality is positively related to it. Mechanism analyses further reveal that network density reduces stock price volatility by mitigating private information arbitrage behavior among institutional investors, whereas network centrality increases stock price volatility by creating private information arbitrage opportunities within the network. Additionally, the paper finds that information asymmetry enhances the positive effect of network centrality on stock price volatility. These findings are generally consistent across subsample analyses for different market states, reactions to good and bad news, and types of equity ownership, as well as in other robustness tests. The practical implications of these findings are significant for market stability regulation.
ISSN:0954-1985
1468-0343
DOI:10.1111/ecpo.12289