Does Investor Recognition Predict Excess Returns?
University of Notre Dame - Mendoza College of Business
University of Zurich - Department of Banking and Finance; Swiss Finance Institute
AFA 2006 Boston Meetings Paper
We test Merton's (1987) hypothesis using individual level stockholdings of Swedish investors. Controlling for size and other factors, we find that lower levels of investor recognition lead to greater future excess returns. Positive (negative) changes in investor recognition are followed by lower (higher) excess returns. The effect of investor recognition is more pronounced for young firms. We demonstrate that investor recognition risk is conditionally priced.
Keywords: Investor recognition, Limited stock market participation, Incomplete information, Asset Pricing
JEL Classification: G11, G12working papers series
Date posted: March 23, 2005
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