Does foreign institutional ownership matter for stock price synchronicity? International evidence

Abstract

We investigate the relation between foreign institutional ownership and stock price synchronicity, and whether this relation varies across country-level institutional and information infrastructures. Using a comprehensive dataset for firms across 40 countries over the period between 2000 and 2016, we document the following notable findings. First, foreign institutional ownership is negatively associated with stock price synchronicity. Second, we find that improved information transparency is a possible channel underlying the effect of foreign institutional ownership on stock price synchronicity. In addition, the synchronicity-reducing effect of foreign institutional ownership is more pronounced for firms in countries with weaker institutional infrastructures. Finally, our results reveal different impacts of foreign institutional ownership on stock price synchronicity across various types of foreign institutional ownership, highlighting the importance of foreign investor heterogeneity in improving firm information environment.