Predictable Price Pressure

56 Pages Posted: 26 May 2021 Last revised: 3 Jun 2021

See all articles by Samuel M. Hartzmark

Samuel M. Hartzmark

University of Chicago - Booth School of Business

David H. Solomon

Boston College - Carroll School of Management

Date Written: May 25, 2021

Abstract

We present evidence that stock returns, both at the market level and the individual stock level, can be predicted by the timing of uninformed inflows and outflows of cash that are known in advance. Aggregate dividend payments to investors predict higher value-weighted market returns on the day of payment and the day afterwards, by 13 b.p. for the top five days per year, and 5 b.p. for the top fifty days. This effect holds in the US and internationally. Effects are weaker in months when mutual funds pay out dividends to investors (and so are less likely to reinvest). Industries with greater past exposure to dividend price pressure significantly underperform those with less exposure, consistent with an eventual partial reversal. Predictable selling pressure leads to significantly lower returns after earnings announcements for firms with higher stock compensation. Back of the envelope calculations suggest price multipliers of each dollar invested in the aggregate market ranging from 1.5 to 2.3. These results suggest that predictable price pressure is a widespread result of money flows, rather than an anomaly.

Keywords: Price Pressure, dividends, asset pricing, market returns, predictable returns

JEL Classification: G02, G12

Suggested Citation

Hartzmark, Samuel M. and Solomon, David H., Predictable Price Pressure (May 25, 2021). Available at SSRN: https://ssrn.com/abstract=3853096 or http://dx.doi.org/10.2139/ssrn.3853096

Samuel M. Hartzmark (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

David H. Solomon

Boston College - Carroll School of Management ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

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