Corporate Equity Ownership and Expected Stock Returns

49 Pages Posted: 20 Apr 2016

See all articles by Jinliang Li

Jinliang Li

Tsinghua University - School of Economics & Management

Yi Tang

Fordham University - Gabelli School of Business

An Yan

Fordham University - Gabelli School of Business

Date Written: April 18, 2016

Abstract

We investigate the cross-sectional predictive relations between stock returns of two public firms with one firm, the parent, owning partial equity of the other, the subsidiary. We find that high past returns of the subsidiary (parent) predict high future returns of the parent (subsidiary). The subsidiary-to-parent predictability does not exist before the ownership is established, remains intact after controlling for a variety of stock characteristics, and is stronger among stocks with higher barriers to arbitrage and lower degree of investor attention. The parent-to-subsidiary predictability is, however, unlikely to be caused by corporate equity ownership, but by other forces such as the industry lead-lag effects.

Keywords: corporate equity ownership, stock returns, market efficiency, limits to arbitrage, investor attention

JEL Classification: G12, G14, G32, G34

Suggested Citation

Li, Jinliang and Tang, Yi and Yan, An, Corporate Equity Ownership and Expected Stock Returns (April 18, 2016). Gabelli School of Business, Fordham University Research Paper No. 2766799, Available at SSRN: https://ssrn.com/abstract=2766799 or http://dx.doi.org/10.2139/ssrn.2766799

Jinliang Li

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China

Yi Tang

Fordham University - Gabelli School of Business ( email )

113 West 60th Street
New York, NY 10023
United States

An Yan (Contact Author)

Fordham University - Gabelli School of Business ( email )

113 West 60th Street
New York, NY 10023
United States
212-636-7401 (Phone)
212-765-5573 (Fax)

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