Alphas in Trading with Value of Votes

68 Pages Posted: 1 Oct 2018 Last revised: 28 Jun 2023

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: June 3, 2023

Abstract

Stock prices contain expected lending fees. However, investors anticipate adverse effects from short selling: Put option writers short to hedge, and option prices reflect the costs. An extended put-call parity shows that these cancel each other out to weaken the equity lending channel to stock prices. Firms with higher put-call parity violations (V) earn lower monthly risk-adjusted returns (80 bps). Results for uncontested firms are insignificant, contrary to contested stocks producing 80 bps. Alphas significantly increase when control matters, and predictability disappears for synthetic stocks without voting rights. Empirically, the value of voting rights determines V to predict stock returns.

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, Alphas in Trading with Value of Votes (June 3, 2023). 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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