Which Investors Matter for Equity Valuations and Expected Returns?

Ralph Koijen, Robert Richmond and Motohiro Yogo

No 14890, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Much work in finance is devoted to identifying characteristics of firms, such as measures of fundamentals and beliefs, that explain differences in asset prices and expected returns. We develop a framework to quantitatively trace the connection between valuations, expected returns, and characteristics back to institutional investors and households. We use it to analyze\ (i) what information is important to investors in forming their demand beyond prices and (ii) what is the relative importance of different investors -- differentiated by type, size, and active share -- in the price formation process. We first show that a small set of characteristics explains the majority of variation in a panel of firm-level valuation ratios across countries. We then estimate an asset demand system using investor-level holdings data, allowing for flexible substitution patterns within and across countries. We find that hedge funds and small, active investment advisors are most influential per dollar of assets under management, while long-term investors, such as pension funds and insurance companies are least influential. In terms of pricing characteristics, small, active investment advisors are most important for the pricing of payout policy, cash flows, and the fraction of sales sold abroad. Large, passive investment advisors are most influential in pricing the Lerner index, a measure of markups, and hedge funds for the CAPM beta.

JEL-codes: G1 (search for similar items in EconPapers)
Date: 2020-06
New Economics Papers: this item is included in nep-cwa
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23)

Downloads: (external link)
https://cepr.org/publications/DP14890 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Which Investors Matter for Equity Valuations and Expected Returns? (2024)
Working Paper: Which Investors Matter for Equity Valuations and Expected Returns? (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:14890

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP14890

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().