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The Impact of Foreign Ownership on Stock Volatility in Indonesia

Authors


  • Acknowledgments: The author thanks Hadi Munadi for help on the data, and Farina Gandadjaja, Alada Phaovibul, and Elfani Wen for excellent research assistance.

Corresponding author: Jianxin Wang, UTS Business School, University of Technology, Sydney. Tel: 61-2-95147722, Fax: 61-2-95149744, email: jianxin.wang@uts.edu.au.

Abstract

This study documents the negative relationship between foreign ownership and the future volatility of Indonesian stocks. The calming effect of foreign ownership is present before, during, and after the Asian financial crisis. It is independent of gross and net foreign trading and the stock's historical volatility. The effect increases with the level of foreign holdings. The findings are contrary to the volatility impact of institutional ownership in developed markets, and indicate the presence of different economic mechanisms leading to the opposite volatility impact from foreign ownership and foreign trading.

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