Title: A market-level tug of war: Investor heterogeneity and asset pricing
Authors: Ran Tao - University of Bristol (United Kingdom) [presenting]
Lei Zhao - ESCP Business School (France)
Chardin Wese Simen - University of Liverpool (United Kingdom)
Abstract: A daily tug of war between opposing investor clientele at the individual stock level has been documented in the asset pricing literature. We measure a market-level tug of war using the cross-sectional intensity of individual tug of war. The Capital Asset Pricing Model (CAPM) tends to perform better, and market betas are strongly and positively related to average returns on quiet days when the market-level tug of war is less intensive. We further show that the well-established finding that a robust risk-return trade-off exists on important information days (e.g. FOMC announcement days and influential firms' earnings announcement days) holds only when such information days coincide with quiet days. Overall, our findings suggest that investor heterogeneity has significant implications on asset pricing.