Additional factor in asset-pricing: Institutional ownership

Ecenur Uğurlu-Yıldırım and İlkay Şendeniz-Yüncü

Finance Research Letters, 2021, vol. 40, issue C

Abstract: In this paper, we hypothesize that institutional investor variable is a proxy for some systematic risk factors, which should be incorporated into the asset-pricing model. Mimicking portfolio for institutional ownership, called IMI (Institutional minus Individual), is constructed. Including IMI to the Carhart's 4-factor model captures the common variations in returns better than all other models that are tested. Consistent with the literature, the new 5-factor model improves mispricing mostly in portfolios including stocks with the lowest and the highest institutional ownership. Empirical findings demonstrate that IMI most likely proxies for noise-trader risk.

Keywords: Asset-pricing; Institutional ownership; Stock market (search for similar items in EconPapers)
JEL-codes: G12 G23 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:40:y:2021:i:c:s154461231930090x

DOI: 10.1016/j.frl.2020.101697

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