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Asset Pricing in the Dark: The Cross Section of OTC Stocks

76 Pages Posted: 26 Nov 2010 Last revised: 2 Aug 2013

Andrew Ang

BlackRock, Inc

Assaf A. Shtauber

Columbia University - Columbia Business School

Paul C. Tetlock

Columbia Business School - Finance and Economics

Multiple version iconThere are 2 versions of this paper

Date Written: July 1, 2013

Abstract

Over-the-counter (OTC) stocks are far less liquid, disclose less information, and exhibit lower institutional holdings than listed stocks. We exploit these different market conditions to test theories of cross-sectional return premiums. Compared to premiums in listed markets, the OTC illiquidity premium is several times higher, the size, value, and volatility premiums are similar, and the momentum premium is three times lower. The OTC illiquidity, size, value, and volatility premiums are largest among stocks held predominantly by retail investors and those not disclosing financial information. Theories of differences in investors’ opinions and limits on short sales help explain these return premiums.

Keywords: Illiquidity Premium, Limits to Arbitrage, Over-the-Counter Markets, OTC Stocks, Pink Sheets, Bulletin Board, Disclosure, Return Anomalies

JEL Classification: G10, G12, G14

Suggested Citation

Ang, Andrew and Shtauber, Assaf A. and Tetlock, Paul C., Asset Pricing in the Dark: The Cross Section of OTC Stocks (July 1, 2013). Available at SSRN: https://ssrn.com/abstract=1715463 or http://dx.doi.org/10.2139/ssrn.1715463

Andrew Ang

BlackRock, Inc ( email )

55 East 52nd Street
New York City, NY 10055
United States

Assaf A. Shtauber

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

Paul C. Tetlock (Contact Author)

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States
212-854-9895 (Fax)

HOME PAGE: http://www0.gsb.columbia.edu/faculty/ptetlock/

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