Excess Returns of Companies with a Distinguished Player

41 Pages Posted: 8 Sep 2008 Last revised: 6 Apr 2009

See all articles by Matthias Blonski

Matthias Blonski

J.W. Goethe University

Ulf von Lilienfeld-Toal

Luxembourg School of Finance

Date Written: March 4, 2009


Arbitrage-free asset pricing theory suggests that equilibrium price and equilibrium value of a firm coincide and correctly anticipate the equilibrium effort of a value-enhancing manager, called the distinguished player. This article shows that in equilibrium investors trade shares of such a firm at a discount below equilibrium value and buyers earn excess returns on their investment if the distinguished player can trade anonymously. The resulting prediction that investment in companies with a distinguished player yields excess returns was confirmed by empirical evidence in von Lilienfeld-Toal and Runzi (2007) who report positive abnormal returns for owner-manager firms taken from S&P500 and S&P1500 firms.

Keywords: excess returns, underpricing, no-arbitrage, asset pricing, corporate finance

JEL Classification: G12, G32, C72, D43, D46

Suggested Citation

Blonski, Matthias and Lilienfeld-Toal, Ulf von, Excess Returns of Companies with a Distinguished Player (March 4, 2009). Available at SSRN: https://ssrn.com/abstract=1264810 or http://dx.doi.org/10.2139/ssrn.1264810

Matthias Blonski (Contact Author)

J.W. Goethe University ( email )

Economics Department
Frankfurt am Main, 60054

Ulf von Lilienfeld-Toal

Luxembourg School of Finance ( email )

162a, avenue de la Faïencerie
Luxembourg-Limpertsberg, L-1511

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