The Study of Relationship between Institutional Investors and Stock Returns Volatility

Stock Return Volatility and the factors that affect on it are the controversial subjects in financial research. Institutional Investors as a group of investors, who access to huge financial resources, have an important role in economic and capital market development. On this basis, study about institutional investor's role in stock returns volatility is necessary. This paper is tended to find evidence in support of relationship between institutional investors and stock return volatility. This relationship is examined based on two theories in Tehran Stock Exchange: Efficient monitoring and convergence of interests. This study is descriptive-correlation based on cross sectional data. The final sample includes 121 of listed companies in Tehran Stock Exchange in 2008. To examine this relationship, multivariable linear regression model was applied. The findings show that the presence of institutional investors in firm increases the monitoring on manager's performance and decreases the information asymmetry problems. These findings are useful for capital market policy makers to approve rules to support institutional investors’s role in corporate governance. It might be useful for investors to have a new criterion to decrease the risk of volatility of return on investments.