TY  - JOUR
AU  - Chen,Joseph
AU  - Hong,Harrison
AU  - Stein,Jeremy C.
TI  - Breadth of Ownership and Stock Returns
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8151
PY  - 2001
Y2  - March 2001
UR  - http://www.nber.org/papers/w8151
L1  - http://www.nber.org/papers/w8151.pdf
N1  - Author contact info:
Joseph Chen
Graduate School of Management
University of California, Davis
One Shields Avenue
3216 Gallagher Hall
Davis, CA 95616-8609
Tel: (530) 752-7155
Fax: (530) 752-2924
E-Mail: chenjs@ucdavis.edu

Harrison Hong
Department of Economics
Princeton University
26 Prospect Avenue
Princeton, NJ 08540
Tel: 609/258-0259
Fax: 609/258-0771
E-Mail: hhong@princeton.edu

Jeremy C. Stein
Department of Economics
Harvard University
Littauer 209
Cambridge, MA  02138
Tel: 617/496-6455
Fax: 617/496-7352
E-Mail: jeremy_stein@harvard.edu
AB  - We develop a model of stock prices in which there are both differences of opinion among investors as well as short-sales constraints.  The key insight that emerges is that breadth of ownership is a valuation indicator.  When breadth is low i.e., when few investors have long positions in the stock this signals that the short-sales constraint is binding tightly, implying that prices are high relative to fundamentals and that expected returns are therefore low.  Thus reductions (increases) in breadth should forecast lower (higher) returns.  Using quarterly data on mutual fund holdings over the period 1979-1998, we find evidence supportive of this prediction: stocks whose change in breadth in the prior quarter places them in the lowest decile of the sample underperform those in the top change-in-breadth decile by 6.38% in the first twelve months after portfolio formation. After adjusting for size, book-to-market and momentum, the corresponding figure is 4.95%.
ER  -