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Style Concentration and Stock Returns

Academic paper

Style Concentration in Ownership and Expected Stock Returns

AuthorsGikas A. Hardouvelis; Γεώργιος Καράλας

Institute

Centre for Economic Policy Research
GRUniversity of Piraeus
?Centre for Economic Policy Research (CEPR)
ESUniversidad Carlos III de Madrid
?University Carlos III of Madrid

Paper linkhttps://ssrn.com/abstract=3065191

Strategy in a nutshell

Trades NYSE, AMEX, and NASDAQ stocks with complete ownership data. Measures style inattention via the Herfindahl index (Hi,q). Long high-inattention decile, short low-inattention decile. Equally weighted, rebalanced quarterly.

Economic rationale

High style concentration (H) predicts higher future returns, reflecting either a risk premium or mispricing corrected over time. Long-short portfolios based on H deliver robust, consistent alpha beyond known systematic factors.

Backtest performance

Annualised return9.82%

Volatility12.26%

Sharpe ratio0.47