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Which Investors Matter for Equity Valuations and Expected Returns?

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  • Ralph S. J. Koijen
  • Robert J. Richmond
  • Motohiro Yogo

Abstract

Based on an asset demand system, we develop a framework to quantify the impact of market trends and changes in regulation on asset prices, price informativeness, and the wealth distribution. Our leading applications are the transition from active to passive investment management and climate-induced shifts in asset demand. The transition from active to passive investment management had a large impact on equity prices but a small impact on price informativeness because capital did not flow from more to less informed investors on average. This finding is based on a new measure of investor-level informativeness that identifies which investors are more informed about future profitability. Climate-induced shifts in asset demand have a potentially large impact on equity prices and the wealth distribution, implying capital gains for passive investment advisors, pension funds, insurance companies, and private banking and capital losses for active investment advisors and hedge funds.

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  • Ralph S. J. Koijen & Robert J. Richmond & Motohiro Yogo, 2020. "Which Investors Matter for Equity Valuations and Expected Returns?," NBER Working Papers 27402, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:27402
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    4. Cookson, J. Anthony & Fos, Vyacheslav & Niessner, Marina, 2021. "Does Disagreement Facilitate Informed Trading? Evidence from Activist Investors," SocArXiv q8xvc, Center for Open Science.
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    6. Bahaj, Saleem & Czech, Robert & Ding, Sitong & Reis, Ricardo, 2023. "The market for inflation risk," Bank of England working papers 1028, Bank of England.
    7. Koijen, Ralph & Yogo, Motohiro, 2020. "Exchange Rates and Asset Prices in a Global Demand System," CEPR Discussion Papers 14874, C.E.P.R. Discussion Papers.
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    9. Olkhov, Victor, 2023. "The Market-Based Statistics of “Actual” Returns of Investors," MPRA Paper 116896, University Library of Munich, Germany.
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    16. Cookson, J. Anthony & Fos, Vyacheslav & Niessner, Marina, 2022. "Does Disagreement Facilitate Informed Trading?," SocArXiv q8xvc_v1, Center for Open Science.
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    20. Philippe van der Beck & Jean-Philippe Bouchaud & Dario Villamaina, 2024. "Ponzi Funds," Papers 2405.12768, arXiv.org.
    21. Zefeng Chen & Zhengyang Jiang, 2022. "The Liquidity Premium of Digital Payment Vehicle," CESifo Working Paper Series 9933, CESifo.
    22. Ben-Rephael, Azi & Cookson, J. Anthony & izhakian, yehuda, 2022. "Trading, Ambiguity and Information in the Options Market," SocArXiv ewunv_v1, Center for Open Science.
    23. Matteo Benetton & Giovanni Compiani, 2020. "Investors’ Beliefs and Asset Prices: A Structural Model of Cryptocurrency Demand," Working Papers 2020-107, Becker Friedman Institute for Research In Economics.
    24. Guillaume Coqueret, 2022. "Characteristics-driven returns in equilibrium," Papers 2203.07865, arXiv.org.
    25. Antoniou, Constantinos & Mitali, Shema F., 2023. "Do stock-level experienced returns influence security selection?," Journal of Banking & Finance, Elsevier, vol. 157(C).

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