Foreign institutional ownership and liquidity commonality around the world

The Influence Of Institutional Investor Ownership On The Level Of Stock Liquidity

“…Bena et al (2017) found that foreign institutions play disciplinary and monitoring roles in corporate governance worldwide and that foreign institutional ownership promotes long-term investment and innovation outputs, internationalization of a firm's operations, and firm valuation. Deng et al (2018) conclude that foreign investor has greater influence in stock's liquidity through their role in monitoring corporate transparency. Bekaert et al (2002); Bekaert et al (2007); Levine and Zervos (1998); Moshirian et al (2017); conclude that foreign investors will increase the stock's liquidity in emerging markets.…”

“…The reason could be due to foreign investors have the experience, knowledge, and information better than domestic investors and perform better than domestic investors in the equities of large, well-known firms in emerging markets (Bekaert et al, 2007;Froot & Ramadorai, 2008;Grinblatt & Keloharju, 2000). Deng et al (2018) stated that the negative effect of institutional ownership on stock liquidity could be caused by the presence of block institutional ownership, which trade less frequently in order to avoid transaction cost. However, to strengthen these results further research is needed, using other measurement of institutional ownership and stock liquidity, and also by comparing the performance of foreign and domestic investors in Indonesia stock market.…”

Commonality in Liquidity of Nearby Firms

“…In addition, commonality in liquidity has been shown to exist in other markets, such as Hong Kong (Brockman and Chung ), Japan (Stahel ), and the United Kingdom (Stahel ). Other studies document liquidity commonality in an international setting, showing that liquidity commonality exists worldwide at the country level (Karolyi, Lee, and Van Dijk ; Deng, Li, and Li ) and the stock exchange level (Brockman, Chung, and Pérignon ). In addition to market liquidity commonality, the literature has documented that stock liquidity comoves with the liquidity of firms in the same industries (Chordia, Roll, and Subrahmanyam ).…”

“…Market‐level liquidity has been widely documented (Chordia, Roll, and Subrahmanyam ; Brockman and Chung ; Coughenour and Saad ; Kamara, Lou, and Sadka ; Hameed, Kang, and Viswanathan ; Koch, Ruenzi, and Starks, ). Common fundamental sources from the supply and demand sides have been shown to cause commonality in stock liquidity (Coughenour and Saad ; Karolyi, Lee, and Van Dijk ; Deng, Li, and Li ). When firms are geographically nearby and share the same local resources that could potentially affect liquidity, they are likely to comove in liquidity with their neighbors.…”

“…Our study makes several contributions to the literature. First, it contributes to the literature that examines commonality in liquidity (Chordia, Roll, and Subrahmanyam ; Coughenour and Saad ; Kamara, Lou, and Sadka ; Hameed, Kang, and Viswanathan ; Koch, Ruenzi, and Starks ; Hasbrouck and Seppi ; Huberman and Halka ; Karolyi, Lee, and Van Dijk ; Deng, Li, and Li ). Different from prior studies, we provide new evidence of commonality in liquidity of firms headquartered in the same states and show that the local liquidity component tends to explain less than both the market liquidity and the industry liquidity components.…”