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

Hardouvelis, Gikas A., Karalas, Georgios and Vayanos, Dimitri ORCID: 0000-0002-0944-4914 (2025) The distribution of investor beliefs, stock ownership, and stock returns. Management Science. ISSN 0025-1909

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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.

Item Type:	Article
Additional Information:	© 2025 INFORMS
Divisions:	Finance
Subjects:	H Social Sciences > HG Finance H Social Sciences > HB Economic Theory
JEL classification:	G - Financial Economics > G1 - General Financial Markets > G10 - General G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice; Investment Decisions G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates G - Financial Economics > G2 - Financial Institutions and Services > G23 - Pension Funds; Other Private Financial Institutions
Date Deposited:	20 Aug 2024 13:33
Last Modified:	18 Jul 2025 15:09
URI:	http://eprints.lse.ac.uk/id/eprint/124623

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