Quotation Weber, Rüdiger. 2019. Institutional Investors and the Time-Variation in Expected Stock Returns.


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Abstract

I document a new stylized fact: the higher the share of institutional ownership in a stock, the more its valuation is driven by expected-return variation rather than by changes in dividend-growth expectations. As general equilibrium outcomes, expected returns inevitably depend on investors' properties and the circumstances they are under. Time variation in the volatility of the pricing kernel of institutional investors acting as marginal investors in stocks with high institutional ownership translates into time-varying expected returns in those stocks. In my model, imperfect sharing of time-varying risk generates cross-sectional differences in return predictability depending on ownership. My findings help explain the weak return predictability of small and value stocks and the postwar predictability reversal.

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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Working/discussion paper, preprint
Language English
Title Institutional Investors and the Time-Variation in Expected Stock Returns
Year 2019
JEL G12, G17, G23

Associations

People
Weber, Rüdiger (Details)
Organization
Institute for Finance, Banking and Insurance IN (Details)
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