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The distribution of investor beliefs, stock ownership, and stock returns

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  • Hardouvelis, Gikas A.
  • Karalas, Georgios
  • Vayanos, Dimitri

Abstract

We study the relationship between the distribution of investor beliefs, the breadth of ownership, and expected returns in a model where stocks differ in the intensity of disagreement and in the extent to which beliefs are polarized, as measured by the number of optimists and pessimists relative to moderates. Polarization explains the size-dependent relationship between breadth and expected returns that we find empirically: positive for large stocks and negative for small stocks. We also find empirical support for the underlying mechanism: polarized stocks earn lower expected returns and are held more broadly if small and less broadly if large.

Suggested Citation

  • Hardouvelis, Gikas A. & Karalas, Georgios & Vayanos, Dimitri, 2025. "The distribution of investor beliefs, stock ownership, and stock returns," LSE Research Online Documents on Economics 124623, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:124623
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    Cited by:

    1. Olkhov, Victor, 2023. "The Market-Based Statistics of “Actual” Returns of Investors," MPRA Paper 116896, University Library of Munich, Germany.
    2. David Blitz & Laurens Swinkels, 2021. "Who owns tobacco stocks?," Journal of Asset Management, Palgrave Macmillan, vol. 22(5), pages 311-325, September.

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    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • 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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