Institutional ownership and aggregate volatility risk

The paper shows that the difference in aggregate volatility risk can explain why several anomalies are stronger among the stocks with low institutional ownership (IO). Institutions tend to stay away from the stocks with extremely low and extremely high levels of firm-specific uncertainty because of their desire to hedge against aggregate volatility risk or exploit their competitive advantage in obtaining and processing information, coupled with the dislike of idiosyncratic risk. Thus, the spread in uncertainty measures is wider for low IO stocks, and the same is true about the differential in aggregate volatility risk.