Institutional ownership as an additional factor to describe stock returns

Uğurlu Yıldırım, Ecenur
After the development of asset pricing models, empirical studies have shown that there are inconsistencies between these theoretical models and empirical findings. Due to these inconsistencies, asset-pricing researchers have started to examine a broader set of factors that might affect asset market behavior. As the institutional investors are huge players in the financial markets, and their importance in stock market has increased in last years, it is crucial to understand the impact of institutional investors on stock prices and on the efficiency of the market (Chen et al., 2015). In this paper, we basically hypothesize that, institutional investor variable might be a proxy for some systematic risk factor, such as asymmetric information risk, noise trader risk, or agency problem, that should be incorporated in to the asset-pricing model. 4320 firms listed on NYSE, NASDAQ and AMEX traded between January 1980 and December 2016 with complete data for size, price, book value, market value and institutional ownership are used as a sample for the analysis. Methodology similar to Fama- French (1993) paper is employed. In addition to market, size and book-to-market factors, a new variable, called IMI (institutional minus individual), which is mimicking portfolio for institutional ownership, is included to the Fama-French 3-factor model, and tested whether this new factor has a significant impact on required return of stocks. In the second part, the literature on the relation between one of the most well-known anomalies, momentum, and institutional investors is re-visited. The success of Carhart’s 4-factor model, and the model with Carhart’s 4-factor and IMI, in terms of explaining the returns are investigated. Overall, it can be said that, including IMI to the Carhart’s 4-factor model performs better than all other models that are tested. This model captures the common variations in returns better than Fama-French 3-factor, Carhart’s 4-factor and other models that are examined. Consistent with the literature, the new 5-factor model improves mispricing mostly in portfolios including stocks with low institutional ownership. When we test the empirical relationship between IMI and possible risk factors it proxies to, information asymmetry is found significantly related to IMI. Therefore, it can be concluded that IMI most likely proxies to asymmetric information risk.


Overconfidence and bubbles in experimental asset markets
Şahin, Serkan; Küçükkaya, Halit Engin; Yılmaz, Özlem; Department of Business Administration (2013)
The aim of this study is to investigate uncertainty levels of industries and explore those financial ratios that have the highest information content in determining the set of industry characteristics and use the most informative ratios selected in developing industry specific financial distress models. First, we employ factor analysis to determine the set of ratios that are most informative in specified industries. Second, we use entropy method as a Multiple Attribute Decision Making Model, to measure the ...
Dynamic complex hedging and portfolio optimization in additive markets
Polat, Onur; Hayfavi, Azize; Department of Financial Mathematics (2009)
In this study, the geometric Additive market models are considered. In general, these market models are incomplete, that means: the perfect replication of derivatives, in the usual sense, is not possible. In this study, it is shown that the market can be completed by new artificial assets which are called “power-jump assets” based on the power-jump processes of the underlying Additive process. Then, the hedging portfolio for claims whose payoff function depends on the prices of the stock and the power-jump ...
Applications of the heston model on BIST30 warrants : hedging and pricing
Mert, Özenç Murat; Sezer, Ali Devin; Department of Financial Mathematics (2016)
The Heston model is one of the first and known stochastic volatility models. The aim of this work is to study the performance of the Heston Model on pricing and hedging the warrants written on BIST30 and the compatibility between the observation of the Heston Model in the literature and BIST30 data.
Margin call risk management with furures and options
Alıravcı, Murat; Duran, Sever; Tanrısever, Fehmi; Department of Industrial Engineering (2013)
This study examines dynamic hedge policy of a company in a multi-period framework. The company begins to operate a project for a customer and it also has a subcontractor which completes an important part of the project by using an economic commodity. The customer will pay a fixed price to the company at the end of the project. Meanwhile, the company needs to pay the debt to the subcontractor and the amount of the debt depends on the spot price of the commodity at that time. The company is allowed to hedge f...
Policy regime change and the Feldstein-Horioka puzzle: the UK evidence
Ozmen, E; Parmaksiz, K (2003-02-01)
This study investigates whether the Feldstein and Horioka [Econ. J. 90 (1980) 314.] argument on domestic saving-investment relationship may remain as a "puzzle" when an endogenous structural break corresponding to a major policy regime change is taken into account. To this end, we employ not only the conventional procedures developed for a data generation process without a break, but also some recent methods which allow stationarity around an endogenous break under the alternative hypothesis. The evidence b...
Citation Formats
E. Uğurlu Yıldırım, “Institutional ownership as an additional factor to describe stock returns,” Ph.D. - Doctoral Program, Middle East Technical University, 2018.