Institutional ownership, free float, and systematic risk

Francisco, Paulo Morais

http://hdl.handle.net/10400.1/28332

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Autores

Francisco, Paulo Morais

Resumo(s)

This study investigates how institutional ownership (IO) and free float (FF) jointly affect firms’systematic risks. It contends that larger institutional stakes increase the dollar imbalance subject tocommon flows, whereas a greater tradable float broadens the set of funds that can tradesynchronously. Both channels should increase the stock market beta. Using a cross-section of12,655 non-financial firms from 93 countries, unconditional, downside (β−), and upside (β+) capitalasset pricing model betas over two-, three-, and five-year windows are analysed. The resultsconfirm that IO and FF are positively and significantly associated with unconditional and downsidebetas. These relationships remain robust after controlling for firm size, valuation, profitability,leverage, liquidity, and industry fixed effects, indicating that the ownership and tradability chan-nels explain systematic risk beyond standard fundamentals. The impact of IO is pronounced forupside beta. Two-stage least squares regressions corroborate the baseline results while addressingendogeneity concerns. Additional tests show that the IO effect is concentrated in advancedeconomies, while the FF effect remains robust across geography, development status, and firmsize. This study evinces the trading flow hypothesis that ownership concentration and tradabilityare the additive drivers of systematic risk.