Subsidiary – Parent Equity Momentum
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Corporate Equity Ownership and Expected Stock Returns
Jinliang Li; Yi Tang; An Yan
- Tsinghua University
- Fordham University
- ?Fordham University - Gabelli School of Business
Strategy in a nutshell
This strategy invests in parent stocks listed on NYSE, AMEX, and NASDAQ with prices between $5 and $1,000. Each month, parent stocks are ranked into quintiles based on the previous month’s realized returns of their subsidiaries. The strategy goes long parents with top-performing subsidiaries and shorts parents with bottom-performing subsidiaries, with equal weighting and monthly rebalancing.
Economic rationale
The approach exploits delayed parent-stock reactions to value-relevant information from subsidiaries. Limited investor attention and barriers to arbitrage create potential market inefficiencies, allowing the strategy to capture return reversals between parent and subsidiary stocks.