Does Ownership Breadth Predict Stock Returns? New Evidence from Market- Wide Holdings Data

We test how ownership breadth predicts stock returns. Using holdings data on a representative Shanghai Stock Exchange investor sample from 1996 to 2007, we find that cross-sectionally, high breadth change quintile stocks underperform low breadth change quintile stocks by 22 percent per year, a result driven by retail investor ownership breadth. This is consistent with breadth increases primarily reflecting greater popularity among noise traders rather than the easing of short-sales constraints. In the time series, high average ownership breadth changes across stocks predict a low Chinese stock market return in the next month, and may predict higher market return skewness. * Choi and Yan received support from a Whitebox Advisors research grant administered through the Yale International Center for Finance. Choi received support from the National Institute on Aging (grant R01AG-021650). We are indebted to Ben Hebert for his research assistance.