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Does Investor Recognition Predict Excess Returns?

38 Pages Posted: 23 Mar 2005  

Andriy Bodnaruk

University of Illinois at Chicago

Per Östberg

University of Zurich - Department of Banking and Finance; Ecole Polytechnique Fédérale de Lausanne - Ecole Polytechnique Fédérale de Lausanne

Date Written: February 2005

Abstract

We test Merton's (1987) hypothesis using individual level stockholdings of Swedish investors. Controlling for size and other factors, we find that lower levels of investor recognition lead to greater future excess returns. Positive (negative) changes in investor recognition are followed by lower (higher) excess returns. The effect of investor recognition is more pronounced for young firms. We demonstrate that investor recognition risk is conditionally priced.

Keywords: Investor recognition, Limited stock market participation, Incomplete information, Asset Pricing

JEL Classification: G11, G12

Suggested Citation

Bodnaruk, Andriy and Östberg, Per, Does Investor Recognition Predict Excess Returns? (February 2005). AFA 2006 Boston Meetings Paper. Available at SSRN: https://ssrn.com/abstract=686380 or http://dx.doi.org/10.2139/ssrn.686380

Andriy Bodnaruk (Contact Author)

University of Illinois at Chicago ( email )

1200 W Harrison St
Chicago, IL 60607
United States

Per Östberg

University of Zurich - Department of Banking and Finance ( email )

Plattenstrasse 14
CH-8032 Zurich, Zurich 8032
Switzerland
+41 44 6342956 (Phone)

Ecole Polytechnique Fédérale de Lausanne - Ecole Polytechnique Fédérale de Lausanne ( email )

c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland

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