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What Does Stock Ownership Breadth Measure?

Last Updated on 10 February, 2024 by Rejaul Karim

The process of measuring stock ownership breadth and its implications on stock returns has long been a topic of interest in the field of finance. In the NBER Working Paper titled “What Does Stock Ownership Breadth Measure?“, a team of distinguished researchers explores this intriguing aspect by examining holdings data from a representative sample of Shanghai Stock Exchange investors.

Their findings reveal a significant relationship between increases in ownership breadth and subsequent low returns – with the highest change quintile stocks underperforming the lowest quintile stocks by an astonishing 23% per year. This trend is primarily driven by small retail investors and suggests a correlation with overpricing.

Conversely, for institutional investors, higher wealth-weighted institutional breadth change corresponds to improved performance. This enlightening study sheds light on the diverse effects of ownership breadth on stock returns, opening new avenues for understanding the nuanced world of finance.

Abstract Of Paper

Using holdings data on a representative sample of all Shanghai Stock Exchange investors, we show that increases in ownership breadth (the fraction of market participants who own a stock) predict low returns: highest change quintile stocks underperform lowest quintile stocks by 23% per year. Small retail investors drive this result. Retail ownership breadth increases appear to be correlated with overpricing. Among institutional investors, however, the opposite holds: Stocks in the top decile of wealth-weighted institutional breadth change outperform the bottom decile by 8% per year, consistent with prior work that interprets breadth as a measure of short-sales constraints.

Original paper – Download PDF

Here you can download the PDF and original paper of What Does Stock Ownership Breadth Measure?.

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James J. Choi
Yale School of Management; National Bureau of Economic Research (NBER)

Li Jin
Harvard Business School – Finance Unit

Hongjun Yan
DePaul University


In conclusion, the research paper “What Does Stock Ownership Breadth Measure?” offers invaluable insights into the complex dynamics of stock ownership breadth and its impact on stock returns. By investigating Shanghai Stock Exchange holdings data, the authors reveal that increases in ownership breadth predict low returns, with small retail investors chiefly responsible for this correlation.

This trend appears to be associated with overpricing, demonstrating a significant factor to consider in investment decision-making processes. Meanwhile, the study unveils a contrasting relationship among institutional investors, whereby higher wealth-weighted institutional breadth change leads to superior performance.

This compelling analysis serves to broaden the understanding of stock ownership breadth, its influence on different investor types, and the intricate interplay of factors shaping the financial markets, ultimately empowering informed decisions and fostering better investment outcomes.

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Institutional Ownership Decomposition and Stock Market Returns

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Q1: What is ownership breadth, and what does the research reveal about its relationship with stock returns?

Ownership breadth refers to the fraction of market participants who own a stock. The research indicates that increases in ownership breadth, particularly driven by small retail investors, predict low stock returns. Stocks with the highest ownership breadth changes underperform those with the lowest changes by a significant margin, suggesting a correlation with overpricing.

Q2: How do institutional investors differ in the context of ownership breadth and stock returns?

For institutional investors, the research uncovers a contrasting relationship. Stocks with higher wealth-weighted institutional breadth changes, indicating increased institutional ownership, tend to outperform those with lower changes. This finding aligns with prior work that interprets ownership breadth as a measure of short-sales constraints.

Q3: What are the implications of this research for investors?

The research underscores the importance of considering ownership breadth dynamics, especially in the context of retail and institutional investors. Understanding the impact of ownership breadth changes on stock returns can aid investors in making more informed decisions. For instance, recognizing the potential overpricing associated with increased retail ownership breadth may prompt cautious investment strategies, while the positive correlation with institutional ownership may signal opportunities for better-performing stocks.

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