Voting Rights and the Cross Section of Stock Returns
79 Pages Posted: 1 Oct 2018 Last revised: 20 Jan 2021
Date Written: December 31, 2020
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: Suggested Citation