Dispersed Ownership and Asset Pricing: An Unpriced Premium Associated with Free Float

Abstract

We explore differences in the levels of dispersed ownership that lead to a second returns-based free float hedging factor, which augments the capital asset pricing model (CAPM) in explaining the cross-section of stock returns. Using a comprehensive sample of stocks from Japan and the constituents of the S&P1500 in the US between 2000 and 2020, the results support the advantages of our proposed two-factor CAPM over alternative models based on liquidity, size, and book to market value, as well as momentum. We further document dispersed ownership premiums for Japanese regional stocks and discounts for the blue-chip Tokyo counterparts.

Keywords: CAPM, free float, ownership and control, investor protection, Japan, USA

JEL Classification: G11, G12, G15, O55