Discussion of Corporate Disclosure Practices, Institutional Investors, and Stock Return Volatility

Abstract

Bushee and Noe examine the impact of firms' corporate disclosure practices on the composition of institutional ownership and stock return volatility. The paper's objective is to triangulate two prior research findings: (i) improved corporate disclosure results in higher levels of institutional ownership (Healy, Hutton, and Palepu [1999]) and (ii) institutional ownership is positively associated with stock return volatility (Sias [1996]). Healy, Hutton, and Palepu [1999] argue that one of the benefits from improved disclosure is stock intermediation by attracting institutional investors. Sias [1996] suggests that attracting institutional investors may have the undesirable consequence of increasing stock return volatility. Bushee and Noe extend this literature by documenting that return volatility is influenced by transient institutions that appear to increase their holdings subsequent to disclosure changes. I structure my discussion of this study primarily around the issues discussed at the conference.