Investor Recognition and Stock Returns

44 Pages Posted: 12 Oct 2005  

Reuven Lehavy

University of Michigan, Stephen M. Ross School of Business

Richard G. Sloan

University of California, Berkeley - Accounting Group

Date Written: October 10, 2005

Abstract

We analyze the relation between investor recognition and stock returns. Consistent with Merton's (1987) theoretical analysis, we show that (i) contemporaneous stock returns are positively related to changes in investor recognition, (ii) future stock returns are negatively related to changes in investor recognition, (iii) the above relations are stronger for stocks with greater idiosyncratic risk and (iv) corporate investment and financing activities are both positively related to changes in investor recognition. Our results indicate that investor recognition is an important determinant of both stock returns and real corporate activity.

Keywords: Investor Recognition, Stock Returns, Asset Pricing

JEL Classification: G12, G14, G31, G32

Suggested Citation

Lehavy, Reuven and Sloan, Richard G., Investor Recognition and Stock Returns (October 10, 2005). Ross School of Business Paper No. 1021. Available at SSRN: https://ssrn.com/abstract=817066 or http://dx.doi.org/10.2139/ssrn.817066

Reuven Lehavy

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI 48109
United States
734-763-1508 (Phone)
734-936-0282 (Fax)

Richard G. Sloan (Contact Author)

University of California, Berkeley - Accounting Group ( email )

Haas School of Business
Berkeley, CA 94720
United States

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