Institutional ownership and return predictability across economically unrelated stocks
George P. Gao,
Pamela C. Moulton and
David T. Ng
Journal of Financial Intermediation, 2017, vol. 31, issue C, 45-63
We document strong weekly lead-lag return predictability across stocks from different industries with no customer-supplier linkages (economically unrelated stocks). Between 1980 and 2010, the industry-neutral long-short hedge portfolio earns an average of over 19 basis points per week. This predictability is related to common institutional ownership and is distinct from previously documented lead-lag effects. Common institutional ownership is a complementary rather than a substitute explanation for return predictability. Information linkages are enough to induce return predictability among stocks in the same industry, but economically unrelated stocks exhibit return predictability only when they have common institutional owners. Our findings suggest that institutional portfolio reallocations can induce return predictability among otherwise unrelated stocks.
Keywords: Return predictability; Anomalies; Institutional ownership; Institutional trading (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinin:v:31:y:2017:i:c:p:45-63
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