Institutional Investors and the Time-Variation in Expected Stock Returns

Aktivität: VortragWissenschaftlicher Vortrag (Science-to-Science)


I document a new stylized fact: the higher the share of institutional ownership in a stock, the more its price-dividend ratio is driven by discount rate variation rather than by changes in dividend growth expectations. Hence, the dividend-price ratio of stocks with high institutional ownership predicts returns. Conversely, for stocks held mostly by individual investors, returns are not predictable. As a general equilibrium outcome, return predictability crucially depends on the properties of the marginal investor. More strongly time-varying volatility in the marginal utility of institutions acting as marginal investors in the respective stocks provides a natural explanation for the observed pattern. In an equilibrium model, time-varying redemption risks generate the observed predictability patterns among a priori identical stocks. My findings help explain the weak return predictability of small and value stocks, the postwar predictability reversal, and the fact that dividend smoothing cannot explain that reversal.
Zeitraum27 Sep. 201928 Sep. 2019
EreignistitelDGF German Finance Association
VeranstaltungstypKeine Angaben