Additional factor in asset-pricing: Institutional ownership

Date

2020-01-01

Author

Uğurlu-Yıldırım, Ecenur
Şendeniz Yüncü, İlkay

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This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

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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.

Subject Keywords

Finance

URI

https://hdl.handle.net/11511/43114

Collections

Department of Business Administration, Article