Which Investors Drive Anomaly Returns and How?

61 Pages Posted: 21 Oct 2022 Last revised: 24 May 2023

See all articles by Andrea Tamoni

Andrea Tamoni

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick

Stanislav Sokolinski

Michigan State University - Department of Finance

Yizhang Li

Rutgers Business School - Rutgers University

Date Written: May 24, 2023

Abstract

We investigate the sources of time-variation in returns on anomaly portfolios, specifically examining the role of different investor types and their trading motives. Our analysis reveals that 39% of the return variation can be attributed to changes in investor demand for common stock characteristics. Flow-induced trading explains an additional 12%, while the remainder is accounted for by random demand shocks. Notably, households and small non-13F institutions have the most significant impact, whereas large 13F institutions exhibit smaller effects. These findings provide strong support for theories that underscore the role of small non-professional investors in generating anomalies, thus challenging theories that prioritize flow-induced or discretionary trading by large institutional investors.

Keywords: Demand-based, Factor Investing, Anomalies, Institutional Investors, Portfolio Choice.

JEL Classification: G11, G12, G23.

Suggested Citation

Tamoni, Andrea and Sokolinski, Stanislav and Li, Yizhang, Which Investors Drive Anomaly Returns and How? (May 24, 2023). Available at SSRN: https://ssrn.com/abstract=4242745 or http://dx.doi.org/10.2139/ssrn.4242745

Andrea Tamoni (Contact Author)

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick ( email )

1 Washington Park
Newark, NJ 07102
United States

Stanislav Sokolinski

Michigan State University - Department of Finance ( email )

315 Eppley Center
East Lansing, MI 48824-1122
United States

Yizhang Li

Rutgers Business School - Rutgers University ( email )

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