Does Ownership Breadth Predict Stock Returns? New Evidence from Market-Wide Holdings Data
Increases in the number of investors who own a Shanghai Stock Exchange stock predict low future returns. Top quintile stocks underperform bottom quintile stocks by 22 percent per year. This result is driven by retail investors and is consistent with ownership breadth increases primarily reflecting greater popularity among noise traders rather than the easing of short-sales constraints described in the theory of Chen, Hong, and Stein (JFE 2002). Stocks in the top decile of wealth-weighted institutional ownership breadth change outperform by 9 percent per year. In the time series, high average ownership breadth changes across stocks predict a low stock market return in the next month, and may predict higher market return skewness.
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