Voting Rights and the Cross Section of Stock Returns

79 Pages Posted: 1 Oct 2018 Last revised: 20 Jan 2021

See all articles by In Ji Jang

In Ji Jang

Bentley University - Department of Finance

Hwagyun Kim

Texas A&M University - Mays Business School

Mahdi Mohseni

Tehran Institute of Advanced Studies

Date Written: December 31, 2020

Abstract

This paper shows that the vote component of stock prices helps explain the cross-section of stock returns. Spread portfolios based on an option-based measure of the value of voting rights generate monthly average return of about 80 basis points. This predictability is not driven by the two common explanations for return predictability of options prices—informed trading and short-sale constraints; and is stronger around control events, only observed in firms with contestable control, and robust to using an alternative measure of the value of voting rights in dual-class firms, suggesting control rights plays an important role in driving our findings.

Keywords: Voting rights, Control rights, Stock returns, Return predictability, Options

JEL Classification: G12, G32, G34

Suggested Citation

Jang, In Ji and Kim, Hwagyun and Mohseni, Mahdi, Voting Rights and the Cross Section of Stock Returns (December 31, 2020). Available at SSRN: https://ssrn.com/abstract=3258211 or http://dx.doi.org/10.2139/ssrn.3258211

In Ji Jang

Bentley University - Department of Finance ( email )

175 Forest Street
Waltham, MA 02154
United States

Hwagyun Kim

Texas A&M University - Mays Business School ( email )

430 Wehner
College Station, TX 77843-4218
United States

Mahdi Mohseni (Contact Author)

Tehran Institute of Advanced Studies ( email )

Tehran, NJ
Iran
8572255120 (Phone)
08619 (Fax)

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