Idiosyncratic Risk, Investor Base, and Returns

Chichernea, Doina; Ferguson, Michael F.; Kassa, Haimanot

doi:10.1111/fima.12067

Cited by 32 publications

(25 citation statements)

References 71 publications

(186 reference statements)

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“…Our results, reported below, support the argument in Chichernea et al. (,b) that heterogeneity among institutions is important for understanding stock return volatility.…”

Section: Empirical Analysissupporting

confidence: 90%

“…Chichernea et al. (,b) argue that ignoring institutional heterogeneity can produce confounding results because institutions exhibit differences in trading behavior, which in turn is caused by differences in objectives, limits, and other characteristics of each institution. They show that it is predominantly investors with a short investment horizon that drive the relation between institutional investors and volatility, as they have a higher trading intensity.…”

Section: Empirical Analysismentioning

confidence: 99%

“…Chichernea et al. (,b) show that it is predominantly investors with a short investment horizon (high churn rate) who are responsible for the positive association between institutional ownership and volatility. We find that it matters whether institutional investors have large or small ownership stakes.…”

mentioning

confidence: 99%

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The Shareholder Base Hypothesis of Stock Return Volatility: Empirical Evidence

Jankensgård¹,

Wilhelmsson

2017

Financial Management

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“…Our results, reported below, support the argument in Chichernea et al. (,b) that heterogeneity among institutions is important for understanding stock return volatility.…”

Section: Empirical Analysissupporting

confidence: 90%

Section: Empirical Analysismentioning

confidence: 99%

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The Shareholder Base Hypothesis of Stock Return Volatility: Empirical Evidence

Jankensgård¹,

Wilhelmsson

2017

Financial Management

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“…(), we use returns at a monthly granularity, but estimate volatility over the previous month using daily returns. We call this “short‐term” to stress that we only consider this one particular methodology and to distinguish this method from the other common measure of idiosyncratic volatility that uses a long time series of monthly returns to forecast future monthly volatility from generalized autoregressive conditional heteroskedasticity models (Guo, Kassa, and Ferguson, ; Chicherna, Ferguson, and Kassa, ). Results from previous studies, such as Fu () and Peterson and Smedema (), suggest that these are two different phenomena despite their similar construction.…”

mentioning

confidence: 99%

Idiosyncratic Volatility and Firm‐Specific News: Beyond Limited Arbitrage

DeLisle¹,

Mauck²,

Smedema

2016

Financial Management

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We examine the relation between idiosyncratic volatility and returns around news announcements. Since mispricing is most likely to occur during news announcements, if idiosyncratic volatility generates a limit to arbitrage then the negative relation between returns and news volatility (volatility contemporaneous to news announcements) should be stronger than the relation to non-news volatility (volatility without an identified news announcement). Instead, we find non-news volatility has a robust negative relation to returns and lacks some of the key features expected if volatility were a reflection of limits to arbitrage. We also find that pricing of non-news volatility is related to lottery-like features of a stock's return. Our results suggest that volatility has a price effect beyond its potential role as a limit to arbitrage. JEL: G12; G14

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“…More recently, Autore and Kovacs (2014) find that seasoned equity issuers paying more in underwriting costs have larger improvements in investor recognition and greater increases in firm value. Chichernea et al (2015) test Merton's (1987) model directly and show that stocks with smaller investor bases earn larger idiosyncratic risk premiums.…”

Section: Investor Recognition Shadow Cost and Firm Valuementioning

confidence: 99%

Stock acquisitions, investor recognition, and announcement returns

Lei

2016

Managerial Finance

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Purpose -The purpose of this paper is to test the hypothesis that relative to a cash acquisition, a stock acquisition would increase the bidder's investor base and lower Merton's (1987) shadow cost, which in turn contributes positively to the bidder announcement return. Design/methodology/approach -Using the number of registered shareholders and measures of institutional ownership as the proxies for investor base and investor recognition, this paper compares their changes and the changes in shadow cost between bidders using different methods of payment. The authors examine the relation between the shadow cost reduction and bidder announcement return in a multivariate framework.Findings -This paper finds that given the target type, bidders using stocks experience significantly larger increases in their investor bases and investor recognition than bidders using cash. Additionally, only bidders using stocks experience significant decreases in their shadow costs. In a multivariate framework, the change in the shadow cost has a negative and significant effect on the bidder announcement return in the sample of stock acquisitions and the subsample of bidders using stocks to acquire private targets. These findings support the authors' hypothesis and suggest that the less established bidders acquiring private targets in particular benefit from the shadow cost reduction. Originality/value -This paper provides the direct evidence that investor recognition matters in mergers and acquisitions. The findings also provide a complementary explanation for the documented positive bidder returns when bidders use stocks to acquire private targets.

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Idiosyncratic Risk, Investor Base, and Returns

Cited by 32 publications

References 71 publications

The Shareholder Base Hypothesis of Stock Return Volatility: Empirical Evidence

The Shareholder Base Hypothesis of Stock Return Volatility: Empirical Evidence

Idiosyncratic Volatility and Firm‐Specific News: Beyond Limited Arbitrage

Stock acquisitions, investor recognition, and announcement returns

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