What Does Stock Ownership Breadth Measure?
48 Pages Posted: 18 Mar 2010 Last revised: 4 Jul 2012
Date Written: June 30, 2012
Using holdings data on a representative sample of all Shanghai Stock Exchange investors, we show that increases in ownership breadth (the fraction of market participants who own a stock) predict low returns: highest change quintile stocks underperform lowest quintile stocks by 23% per year. Small retail investors drive this result. Retail ownership breadth increases appear to be correlated with overpricing. Among institutional investors, however, the opposite holds: Stocks in the top decile of wealth-weighted institutional breadth change outperform the bottom decile by 8% per year, consistent with prior work that interprets breadth as a measure of short-sales constraints.
Keywords: Ownership breadth, short-sales constraints, heterogeneous beliefs, China
JEL Classification: G12, G14, G15
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