Dispersed ownership and asset pricing: An unpriced premium associated with free float

Buce Hearn; Igor Filatotchev; Marc Goergen

doi:10.1016/j.jcorpfin.2025.102763

Dispersed ownership and asset pricing: An unpriced premium associated with free float

Buce Hearn, Igor Filatotchev, Marc Goergen

Department of Global Business and Trade

Publication: Scientific journal › Journal article › peer-review

Abstract

We explore differences in the levels of dispersed ownership that lead to a returns-based free float hedging factor in addition to size, which augments the capital asset pricing model (CAPM) in explaining the cross-section of stock returns. Using the S&P 1500 stocks in the US between 1985 and 2023, the results support the advantages of free float within a three-factor CAPM including size over alternative models based on liquidity, book-to-market value, and momentum. We argue that this yields a useful means for hedging effectively against the risks associated with the fundamental underlying likelihood of expropriation in a specific firm based on its ownership structure.

Original language	English
Article number	102763
Number of pages	22
Journal	Journal of Corporate Finance
Volume	92
DOIs	https://doi.org/10.1016/j.jcorpfin.2025.102763
Publication status	Published - 2025

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10.1016/j.jcorpfin.2025.102763Licence: CC BY

Cite this

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title = "Dispersed ownership and asset pricing: An unpriced premium associated with free float",

abstract = "We explore differences in the levels of dispersed ownership that lead to a returns-based free float hedging factor in addition to size, which augments the capital asset pricing model (CAPM) in explaining the cross-section of stock returns. Using the S\&P 1500 stocks in the US between 1985 and 2023, the results support the advantages of free float within a three-factor CAPM including size over alternative models based on liquidity, book-to-market value, and momentum. We argue that this yields a useful means for hedging effectively against the risks associated with the fundamental underlying likelihood of expropriation in a specific firm based on its ownership structure.",

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AB - We explore differences in the levels of dispersed ownership that lead to a returns-based free float hedging factor in addition to size, which augments the capital asset pricing model (CAPM) in explaining the cross-section of stock returns. Using the S&P 1500 stocks in the US between 1985 and 2023, the results support the advantages of free float within a three-factor CAPM including size over alternative models based on liquidity, book-to-market value, and momentum. We argue that this yields a useful means for hedging effectively against the risks associated with the fundamental underlying likelihood of expropriation in a specific firm based on its ownership structure.

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DO - 10.1016/j.jcorpfin.2025.102763

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