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Additional factor in asset-pricing: Institutional ownership

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  • Uğurlu-Yıldırım, Ecenur
  • Şendeniz-Yüncü, İlkay

Abstract

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.

Suggested Citation

  • Uğurlu-Yıldırım, Ecenur & Şendeniz-Yüncü, İlkay, 2021. "Additional factor in asset-pricing: Institutional ownership," Finance Research Letters, Elsevier, vol. 40(C).
    • Handle: RePEc:eee:finlet:v:40:y:2021:i:c:s154461231930090x
    DOI: 10.1016/j.frl.2020.101697
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    More about this item

    Keywords

    Asset-pricing; Institutional ownership; Stock market;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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