The distribution of investor beliefs, stock ownership, and stock returns

Gikas A. Hardouvelis, Georgios Karalas and Dimitri Vayanos

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We study the relationship between the distribution of investor beliefs, the breadth of ownership, and expected returns in a model where stocks differ in the intensity of disagreement and in the extent to which beliefs are polarized, as measured by the number of optimists and pessimists relative to moderates. Polarization explains the size-dependent relationship between breadth and expected returns that we find empirically: positive for large stocks and negative for small stocks. We also find empirical support for the underlying mechanism: polarized stocks earn lower expected returns and are held more broadly if small and less broadly if large.

Keywords: differences of opinion; polarization; breadth of ownership; return predictability (search for similar items in EconPapers)
JEL-codes: G10 G11 G12 G23 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2025-06-26
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Published in Management Science, 26, June, 2025. ISSN: 0025-1909

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http://eprints.lse.ac.uk/124623/ Open access version. (application/pdf)

Related works:
Working Paper: The Distribution of Investor Beliefs, Stock Ownership and Stock Returns (2021)
Working Paper: The Distribution of Investor Beliefs, Stock Ownership and Stock Returns (2021)
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