Which Investors Drive Anomaly Returns and How?

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: 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