Working Paper: NBER ID: w16591
Authors: James J. Choi; Li Jin; Hongjun Yan
Abstract: Using holdings data on a representative sample of all Shanghai Stock Exchange investors, we show that increases in ownership breadth (the fraction of market participants who own a stock) predict low returns: highest change quintile stocks underperform lowest quintile stocks by 23% per year. Small retail investors drive this result. Retail ownership breadth increases appear to be correlated with overpricing. Among institutional investors, however, the opposite holds: Stocks in the top decile of wealth-weighted institutional breadth change outperform the bottom decile by 8% per year, consistent with prior work that interprets breadth as a measure of short-sales constraints.
Keywords: Ownership Breadth; Stock Returns; Retail Investors
JEL Codes: G12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increases in ownership breadth (G34) | low future returns (G17) |
| retail ownership breadth increases (L81) | overpricing among institutional investors (G24) |
| stocks in the top decile of wealth-weighted institutional breadth change (G24) | outperform stocks in the bottom decile (G17) |