Changes in Ownership Breadth and Capital Market Anomalies

57 Pages Posted: 19 Jun 2017 Last revised: 23 Jan 2020

See all articles by Yangru Wu

Yangru Wu

Rutgers University, Newark - School of Business - Department of Finance & Economics

Weike Xu

Clemson University - Department of Finance

Date Written: January 20, 2020

Abstract

This paper investigates how the interaction of entries and exits of informed institutional investors with market anomaly signals affects strategy performance. We find that the long legs of anomalies earn more positive alphas following entries, while the short legs of anomalies earn more negative alphas following exits of informed institutional investors. We develop enhanced anomaly-based strategies by buying stocks in the long legs of anomalies with entries and shorting stocks in the short legs of anomalies with exits. These strategies outperform the original anomalies, with an increase of 19 to 90 bps per month in the Fama and French (2015) five-factor alpha. The entries and exits of institutional investors capture informed trading and future earnings surprises, thereby enhancing the anomalies.

Keywords: Institutional investors, Capital market anomalies, Performance enhancement

JEL Classification: G23, G12

Suggested Citation

Wu, Yangru and Xu, Weike, Changes in Ownership Breadth and Capital Market Anomalies (January 20, 2020). Available at SSRN: https://ssrn.com/abstract=2988428 or http://dx.doi.org/10.2139/ssrn.2988428

Yangru Wu (Contact Author)

Rutgers University, Newark - School of Business - Department of Finance & Economics ( email )

1 Washington Park
Newark, NJ 07102
United States
973-353-1146 (Phone)
973-353-1006 (Fax)

HOME PAGE: http://andromeda.rutgers.edu/~yangruwu

Weike Xu

Clemson University - Department of Finance ( email )

425 Sirrine Hall
Clemson, SC 29634
United States

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