Smart-Beta Institutional Ownership and Stock Return Anomalies

65 Pages Posted: 10 Jan 2023 Last revised: 14 Apr 2023

See all articles by Jihong Song

Jihong Song

Princeton University - Department of Economics

Date Written: March 30, 2023


I document a novel asset-pricing fact that the expected returns of 7 anomaly factors are lower among stocks with higher ownership share by smart-beta institutional investors who trade according to these anomalies. The factor-oriented demand of smart-beta investors contributes to lower price-of-risk or mispricing for the anomaly factors in equilibrium; and stocks have different levels of smart-beta demand from their owners due to investor heterogeneity and market segmentation. As a result, the return predictability of anomaly factors is decreasing in smart-beta institutional ownership in the cross-section of stocks. I provide persistent and robust empirical evidence for this relationship based on new measures of smart-beta factor demand at investor level. As the results show significant market segmentation across stocks, I further document that the market segmentation is driven by idiosyncratic volatility, benchmarking, and strategic considerations in smart-beta investing.

Keywords: Stock Return Anomalies, Smart-Beta Investing, Institutional Investors, Asset Demand System

JEL Classification: G11, G12, G23

Suggested Citation

Song, Jihong, Smart-Beta Institutional Ownership and Stock Return Anomalies (March 30, 2023). Available at SSRN: or

Jihong Song (Contact Author)

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

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