Does Investor Recognition Predict Excess Returns?
38 Pages Posted: 23 Mar 2005
Date Written: February 2005
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: Suggested Citation