Stock return volatility is an important aspect of financial markets which requires specific attention of researchers. This study examines the impact of board structure, board activities and institutional investors on the stock return volatility of the Indian firms.
The author had selected the non-financial companies of the National Stock Exchange (NSE), which form the part of the NSE 500 index. Regression models had been estimated using the system generalised method of moment (GMM) framework designed by Arellano and Bover (1995) and Blundell and Bond (1998) to deal with endogeneity concerns.
The author found that the stock return volatility was affected by the institutional investors, particularly pressure-insensitive (PI) investors. Moreover, this study supported the non-linear relationship between stock return volatility and institutional investors. Unlike developed world, the author found that the independent directors were positively associated with the stock return volatility.
It is important for the investors and regulators to understand that the behaviour of the institutional investors depends on its class and having more independent directors will not ensure containment of the stock return volatility as suggested in previous literature reviews.
Most of the prior studies have used simple standard deviation (SD) to compute stock return volatility. In this study, besides SD, the author used the generalised autoregressive conditional heteroskedasticity (GARCH) model to compute the stock return volatility of the firms.
