The power of sharing: Common institutional ownership and stock price synchronicity
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    Abstract:

    Based on the diversified investment of institutional investors in the industry, this paper explores the influence of common institutional ownership on the pricing efficiency of the capital market from the perspective of stock price synchronicity. It is found that common institutional ownership can generate a “synergy effect” and reduce firms’ stock price synchronicity to maximize the portfolio value. This result is mainly driven by an “information efficiency effect”, excluding the “noise trading” hypothesis. The mechanism analysis shows that common institutional ownership can improve the information disclosure quality by “voting with hands” and “voting with feet”, with the impact of “voting with feet” being stronger than “voting with hands”. The heterogeneity test finds that under conditions of low economic policy uncertainty, intense industry competition, and nonSOEs, common institutional ownership had a more significant inhibitory effect on stock price synchronicity. In addition, different types of common institutional ownership have heterogeneous effects on firms’ stock price synchronicity. This paper not only enriches the study of the factors influencing stock price synchronicity but also discovers a new mechanism of corporate governance. The findings provide a theoretical basis for regulating institutional investors’ diversified investment behaviors in the industry and improving the pricing efficiency of the capital market.

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  • Online: January 20,2025
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