Foreign Capital and Stock Return Volatility: An Investigation on Borsa Istanbul

Abstract

The aim of this study is to investigate the relationship between firm-level foreign ownership and stock return volatility for the firms listed in Borsa Istanbul. Foreign investors are grouped as foreign institutions, foreign funds and foreign corporate investors and the relationship between their holding levels and stock return volatility is investigated. Including 192 firms listed in Borsa Istanbul and 1828 observations from 2006 to 2015, our results reveal that there is a negative relationship between firm-level foreign funds ownership and stock return volatility. This result indicates that foreign funds in Borsa Istanbul increase the price stability of the market. We do not find any significant relationship between ownership of foreign corporate investors and stock return volatility. Moreover, large and firms with low leverage have lower stock return volatility. These findings are important for understanding the role of foreign investors in Turkey.