Does Institutional Ownership Matter for International Stock Return Comovement?

54 Pages Posted: 12 Jun 2015 Last revised: 27 Jun 2017

See all articles by José Afonso Faias

José Afonso Faias

Catholic University of Portugal (UCP)

Miguel A. Ferreira

Nova School of Business and Economics; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Date Written: June 1, 2017


We study the link between international stock return comovements and institutional investment. We test the hypothesis that the rise of institutional investors as shareholders of corporations worldwide has increased cross-country correlations and decreased cross-industry correlations. Using stock-level institutional holdings across 45 countries during the period 2001-2010, we find that industry and global factors are relatively more important than country factors in explaining stock return variation among stocks with higher institutional ownership. Industry diversification strategies offer more benefits than country diversification benefits for stocks with high institutional ownership. Our findings show that cross-border portfolio investment is a powerful force of international capital markets integration and convergence of asset prices across countries.

Keywords: Institutional investors, Comovements, International diversification, International capital markets

JEL Classification: F36, G11, G15

Suggested Citation

Faias, José and Ferreira, Miguel Almeida, Does Institutional Ownership Matter for International Stock Return Comovement? (June 1, 2017). European Corporate Governance Institute (ECGI) - Finance Working Paper No. 465/2016, Available at SSRN: or

José Faias (Contact Author)

Catholic University of Portugal (UCP) ( email )

Palma de Cima
Lisboa, 1649-023

Miguel Almeida Ferreira

Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

Centre for Economic Policy Research (CEPR) ( email )

United Kingdom

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