References (14)



When Some Investors Head for the Exit

Harrison G. Hong

Princeton University - Department of Economics; National Bureau of Economic Research (NBER)

Wenxi Jiang

Yale University - School of Management

November 19, 2011

AFA 2013 San Diego Meetings Paper

We develop a measure of binding short-sales constraints in equity markets derived from Chen, Hong, and Stein (2002)'s breadth of mutual fund ownership. We show that when the exit rate, the fraction of investors that held a stock in the previous quarter and that exit that stock this quarter, is high, short-sales constraints are more tightly binding and price is high relative to fundamentals. In contrast, entry of investors that have not previously owned the stock is associated with more not less over-pricing. The exit rate better captures the disagreement distribution of investors in similar fund styles actively evaluating a stock. Using equity funds and for the fi rst time hedge funds, we show that stocks with high exit rates consistently under-perform the market throughout the entire 1980-2008 sample.

Number of Pages in PDF File: 40

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Date posted: November 20, 2011 ; Last revised: March 15, 2012

Suggested Citation

Hong, Harrison G. and Jiang, Wenxi, When Some Investors Head for the Exit (November 19, 2011). AFA 2013 San Diego Meetings Paper. Available at SSRN: http://ssrn.com/abstract=1962063 or http://dx.doi.org/10.2139/ssrn.1962063

Contact Information

Harrison G. Hong (Contact Author)
Princeton University - Department of Economics ( email )
Princeton, NJ 08544-1021
United States

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Wenxi Jiang
Yale University - School of Management ( email )
New Haven, CT 06520
United States
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