Weber, Rüdiger. 2019. Institutional Investors and the Time-Variation in Expected Stock Returns. DGF German Finance Association, Essen, Deutschland, 27.09.-28.09.
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Abstract
I document a new stylized fact: the higher the share of institutional ownership in a stock, the more its price-dividend ratio is driven by discount rate variation rather than by changes in dividend growth expectations. Hence, the dividend-price ratio of stocks with high institutional ownership predicts returns. Conversely, for stocks held mostly by individual investors, returns are not predictable. As a general equilibrium outcome, return predictability crucially depends on the properties of the marginal investor. More strongly time-varying volatility in the marginal utility of institutions acting as marginal investors in the respective stocks provides a natural explanation for the observed pattern. In an equilibrium model, time-varying redemption risks generate the observed predictability patterns among a priori identical stocks. My findings help explain the weak return predictability of small and value stocks, the postwar predictability reversal, and the fact that dividend smoothing cannot explain that reversal.
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Status of publication | Published |
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Affiliation | WU |
Type of publication | Paper presented at an academic conference or symposium |
Language | English |
Title | Institutional Investors and the Time-Variation in Expected Stock Returns |
Event | DGF German Finance Association |
Year | 2019 |
Date | 27.09.-28.09 |
Country | Germany |
Location | Essen |
URL | https://www.dgf2019.wiwi.uni-due.de/home/ |
Associations
- People
- Weber, Rüdiger (Details)
- Organization
- Institute for Finance, Banking and Insurance IN (Details)