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Conference Paper: Retail investor recognition and the cross section of stock returns

TitleRetail investor recognition and the cross section of stock returns
Authors
KeywordsRetail investor recognition
Ownership breadth
Net equity issuance
Issue Date2010
Citation
The 2010 Annual Meeting of the Financial Management Association (FMA), New York, N.Y., 20-23 October 2010. How to Cite?
AbstractWe test and offer support to Merton’s (1987) theory that difference in a stock’s investor recognition affects its cost of capital. In the U.S. market, using the breadth of ownership among retail investors as a proxy for investor recognition, we show that a long-short portfolio based on the annual change of shareholder base earns a compounded annual abnormal return of 6.42% after controlling for the Fama-French three factors. These results are more pronounced among young, low visibility and high idiosyncratic volatility stocks, and are robust to various controls such as momentum, breadth of institutional ownership, analyst coverage, liquidity, idiosyncratic volatility, trading volume, accruals, capital investment, probability of informed trading (PIN), and retail investor sentiment. Moreover, we present evidence that the investor recognition effect can explain approximately 20% of the net equity issuance effect documented by Pontiff and Woodgate (2008).
DescriptionAcademic Paper Sessions: Session 151 – The Cross-Section of Returns: Cash, Investor Recognition, and Idiosyncratic Volatility
Persistent Identifierhttp://hdl.handle.net/10722/142940

 

DC FieldValueLanguage
dc.contributor.authorChang, ECen_US
dc.contributor.authorGuo, Cen_US
dc.date.accessioned2011-10-28T02:59:18Z-
dc.date.available2011-10-28T02:59:18Z-
dc.date.issued2010en_US
dc.identifier.citationThe 2010 Annual Meeting of the Financial Management Association (FMA), New York, N.Y., 20-23 October 2010.en_US
dc.identifier.urihttp://hdl.handle.net/10722/142940-
dc.descriptionAcademic Paper Sessions: Session 151 – The Cross-Section of Returns: Cash, Investor Recognition, and Idiosyncratic Volatility-
dc.description.abstractWe test and offer support to Merton’s (1987) theory that difference in a stock’s investor recognition affects its cost of capital. In the U.S. market, using the breadth of ownership among retail investors as a proxy for investor recognition, we show that a long-short portfolio based on the annual change of shareholder base earns a compounded annual abnormal return of 6.42% after controlling for the Fama-French three factors. These results are more pronounced among young, low visibility and high idiosyncratic volatility stocks, and are robust to various controls such as momentum, breadth of institutional ownership, analyst coverage, liquidity, idiosyncratic volatility, trading volume, accruals, capital investment, probability of informed trading (PIN), and retail investor sentiment. Moreover, we present evidence that the investor recognition effect can explain approximately 20% of the net equity issuance effect documented by Pontiff and Woodgate (2008).-
dc.languageengen_US
dc.relation.ispartofAnnual Meeting of the Financial Management Association (FMA)en_US
dc.rightsCreative Commons: Attribution 3.0 Hong Kong License-
dc.subjectRetail investor recognition-
dc.subjectOwnership breadth-
dc.subjectNet equity issuance-
dc.titleRetail investor recognition and the cross section of stock returnsen_US
dc.typeConference_Paperen_US
dc.identifier.emailChang, EC: ecchang@business.hku.hken_US
dc.identifier.authorityChang, EC=rp01050en_US
dc.description.naturepostprint-
dc.identifier.hkuros197211en_US
dc.description.otherThe 2010 Annual Meeting of the Financial Management Association (FMA), New York, N.Y., 20-23 October 2010.-

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