Dispersed ownership and asset pricing: an unpriced premium associated with free float
Dispersed ownership and asset pricing: an unpriced premium associated with free float
We explore differences in the levels of dispersed ownership that lead to a returns-based free float hedging factor in addition to size, which augments the capital asset pricing model (CAPM) in explaining the cross-section of stock returns. Using the S&P 1500 stocks in the US between 1985 and 2023, the results support the advantages of free float within a three-factor CAPM including size over alternative models based on liquidity, book-to-market value, and momentum. We argue that this yields a useful means for hedging effectively against the risks associated with the fundamental underlying likelihood of expropriation in a specific firm based on its ownership structure.
CAPM, Free float, Investor protection, Ownership and control
Hearn, Bruce
45dccea3-9631-4e5e-914c-385896674dc2
Filatotchev, Igor
6169c37c-e22f-4457-bda5-0e41565b4636
Goergen, Marc
28930163-8e4b-496f-913a-55c58bc40ed5
3 March 2025
Hearn, Bruce
45dccea3-9631-4e5e-914c-385896674dc2
Filatotchev, Igor
6169c37c-e22f-4457-bda5-0e41565b4636
Goergen, Marc
28930163-8e4b-496f-913a-55c58bc40ed5
Hearn, Bruce, Filatotchev, Igor and Goergen, Marc
(2025)
Dispersed ownership and asset pricing: an unpriced premium associated with free float.
Journal of Corporate Finance, 92, [102763].
(doi:10.1016/j.jcorpfin.2025.102763).
Abstract
We explore differences in the levels of dispersed ownership that lead to a returns-based free float hedging factor in addition to size, which augments the capital asset pricing model (CAPM) in explaining the cross-section of stock returns. Using the S&P 1500 stocks in the US between 1985 and 2023, the results support the advantages of free float within a three-factor CAPM including size over alternative models based on liquidity, book-to-market value, and momentum. We argue that this yields a useful means for hedging effectively against the risks associated with the fundamental underlying likelihood of expropriation in a specific firm based on its ownership structure.
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More information
Accepted/In Press date: 21 February 2025
e-pub ahead of print date: 23 February 2025
Published date: 3 March 2025
Keywords:
CAPM, Free float, Investor protection, Ownership and control
Identifiers
Local EPrints ID: 499602
URI: http://eprints.soton.ac.uk/id/eprint/499602
ISSN: 0929-1199
PURE UUID: 276f293b-8db2-4b94-bc57-2a5df40d839c
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Date deposited: 27 Mar 2025 17:44
Last modified: 22 Aug 2025 02:24
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Author:
Igor Filatotchev
Author:
Marc Goergen
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