Which Investors Matter for Equity Valuations and Expected Returns?

75 Pages Posted: 28 Jun 2019 Last revised: 31 Aug 2023

See all articles by Ralph S. J. Koijen

Ralph S. J. Koijen

University of Chicago - Booth School of Business; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Robert Richmond

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER)

Motohiro Yogo

Princeton University - Department of Economics; National Bureau of Economic Research

Multiple version iconThere are 3 versions of this paper

Date Written: August 26, 2023

Abstract

Based on an asset demand system, we develop a framework to quantify the impact of market trends and changes in regulation on asset prices, price informativeness, and the wealth distribution. Our leading applications are the transition from active to passive investment management and climate-induced shifts in asset demand. The transition from active to passive investment management had a large impact on equity prices but a small impact on price informativeness because capital did not flow from more to less informed investors on average. This finding is based on a new measure of investor-level informativeness that identifies which investors are more informed about future profitability. Climate-induced shifts in asset demand have a potentially large impact on equity prices and the wealth distribution, implying capital gains for passive investment advisors, pension funds, insurance companies, and private banking and capital losses for active investment advisors and hedge funds.

Keywords: Asset demand system, Asset pricing, Climate risk, Passive investment management, Price informativeness

JEL Classification: G12, G23, Q54

Suggested Citation

Koijen, Ralph S. J. and Richmond, Robert and Yogo, Motohiro, Which Investors Matter for Equity Valuations and Expected Returns? (August 26, 2023). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2019-92, NYU Stern School of Business, Available at SSRN: https://ssrn.com/abstract=3378340 or http://dx.doi.org/10.2139/ssrn.3378340

Ralph S. J. Koijen (Contact Author)

University of Chicago - Booth School of Business ( email )

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Chicago, IL 60637
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HOME PAGE: http://faculty.chicagobooth.edu/ralph.koijen/

Centre for Economic Policy Research (CEPR) ( email )

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National Bureau of Economic Research (NBER) ( email )

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Robert Richmond

New York University (NYU) - Department of Finance ( email )

Stern School of Business
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National Bureau of Economic Research (NBER) ( email )

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Motohiro Yogo

Princeton University - Department of Economics ( email )

Julis Romo Rabinowitz Building
Princeton, NJ 08544
United States

HOME PAGE: http://sites.google.com/site/motohiroyogo/

National Bureau of Economic Research

1050 Massachusetts Avenue
Cambridge, MA 02138
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