| Abstract: | In the past decade, financial markets have been hit twice by crisis, followed each time by recession (i.e., Enron and the subprime mortgage crisis). I present three theories to explain the dynamics of share prices: rational expectations, behavioral finance, and an institution-oriented theory. Institutional investors are the dominant actors on financial markets. They hold the majority of the share capital in big companies. They tend to drive financial markets to a higher level of risk (volatility). The greater the percentage of the share capital held by institutional investors in a company, the higher the volatility (variance) of the share price. The results of my multilevel analysis confirm this hypothesis (a sample of 1,369 firms in twenty-two OECD countries). There are also significant differences among the OECD countries. Whereas both financial market crises originated in the United States, the country did not have the highest level of volatility in the period from 2000 to 2013. |
