How does market breadth impact stock returns?
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Market breadth, defined as the difference between the average number of rising and falling stocks within a portfolio, significantly influences stock returns. Studies across various countries and markets demonstrate that high market breadth portfolios tend to outperform low market breadth portfolios, even after accounting for factors like size, style, and volatility. Ownership breadth, reflecting the fraction of market participants who own a stock, plays a crucial role in predicting stock returns, with retail investors driving negative returns while institutional investors experience positive returns. Additionally, the breadth of ownership, measured through trading data, has a positive impact on stock excess returns, proving significant across different stock characteristics and market conditions. These findings highlight the importance of market and ownership breadth in understanding and predicting stock returns.
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| Papers (5) | Insight |
|---|---|
2 Citations | Market breadth, measured by the difference in rising and falling stocks, predicts future stock returns. High market breadth portfolios outperform low ones, especially in bullish periods and collectivistic societies. |
| Market breadth, specifically ownership breadth of Portuguese mutual funds, impacts stock returns. Stocks with negative changes in ownership tend to underperform in short horizons due to short-sales constraints. | |
| Market breadth impacts stock returns differently for retail and institutional investors. Higher ownership breadth by retail investors predicts low returns, while institutional breadth predicts high returns. | |
9 Citations | Market breadth negatively impacts stock returns, with manipulation of stock prices intensifying this effect. Relaxing short-sale constraints can mitigate manipulation, improving the breadth-return relationship. |
3 Citations | Market breadth, measured by ownership diversity, positively influences stock excess returns in the Chinese Stock Market, surpassing traditional factors, impacting both large and small stocks consistently. |
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