Institutional Ownership and Return Predictability across Economically Unrelated Stocks

February 26, 2013 Leave a comment

Institutional Ownership and Return Predictability across Economically Unrelated Stocks

George Gao 

Cornell University – Samuel Curtis Johnson Graduate School of Management

Pamela C. Moulton 

Cornell University

David Ng 

Cornell University
February 12, 2013

Abstract: 
We document strong weekly return predictability across the stocks of firms that are from industries with no customer-supplier linkages (economically unrelated stocks). This predictability arises from common institutional ownership rather than from the slow information diffusion underlying previously documented lead-lag effects. The return predictability occurs only among stocks with common institutional investors, and the profitability of a long-short portfolio strategy based on the predicted returns varies positively with the level of common institutional ownership. Our results are not explained by weekly reversals, momentum, or nonsynchronous trading. Our findings suggest that institutional portfolio reallocations can induce return predictability among otherwise unrelated stocks.

Filed under Research

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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