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| Author: | Bodnaruk, A. Ostberg, P. |
| Title: | Does investor recognition predict returns? |
| Journal: | Journal of Financial Economics
2009 : FEB, VOL. 91:2, p. 208-226 |
| Index terms: | stock markets stock returns trading participation shareholders investors Sweden Nordic countries Scandinavia |
| Freeterms: | incomplete information |
| Language: | eng |
| Abstract: | Merton (1987) shows that stocks about which not all investors are informed should yield a return premium which depends on the shadow cost of incomplete information which in turn depends on the shareholder base (here as: s-base), relative market size, and idiosyncratic risk (as: idc-r). Based on a comprehensive database of Swedish shareholdings, it is shown that stock returns are positively related to the shadow cost. It is also found that the s-base is negatively related to returns when controlling for size and idc-r. Zero-cost portfolios based on the shadow cost/s-base yield substantial trading profits being never positively correlated with the market and are only modestly explained by the four-factor model. |
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