Institutional ownership and commonality in liquidity: the case of Amman Stock Exchange, Jordan

Purpose This study aims to investigate the impact of institutional ownership on commonality in liquidity in the Amman Stock Exchange (ASE), emphasizing the differing effects of domestic versus foreign institutional investors. Design/methodology/approach The panel data methodology with random effects models is applied to analyze the sample of nonfinancial companies listed in the ASE over the period 2011–2020. Robustness tests, including endogeneity assessments using two-stage least squares (2SLS) and the two-step system generalized method of moments methods, are also conducted to validate the findings. Findings The results reveal that both overall institutional ownership and specifically domestic institutional ownership positively influence liquidity commonality. In contrast, foreign institutional ownership negatively impacts liquidity commonality. In addition, the study finds that the Arab Spring and COVID-19 events significantly affected liquidity commonality, with both events having negative impacts. The robustness tests confirm the stability of these results across various model specifications. Practical implications These insights underscore the importance of enhancing domestic institutional participation in the ASE to promote market stability and liquidity. Regulatory measures that encourage transparency and reduce barriers for domestic investors could be beneficial. Originality/value The study contributes to the literature by highlighting the nuanced relationship between institutional ownership and liquidity commonality in a developing market context, specifically Jordan. This research enriches the existing body of knowledge by considering the distinct effects of domestic and foreign institutional investors, a perspective often overlooked in prior studies predominantly focused on developed economies.