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"Predictable Price Pressure"

Event details of CIFRA UvA Finance Seminars: Sam Hartzmark (University of Chicago)
Date 3 June 2021
Time 15:00 -16:15

Abstract*

We present evidence that stock returns, both at the market level and the individual stock level, can be predicted by the timing of uninformed inflows and outflows of cash that are known in advance. Aggregate dividend payments to investors predict higher value-weighted market returns on the day of payment and the day afterwards, by 13 b.p. for the top five days per year, and 5 b.p. for the top fifty days. This effect holds in the US and internationally. Effects are weaker in months when mutual funds pay out dividends to investors (and so are less likely to reinvest). Industries with greater past exposure to dividend price pressure significantly underperform those with less exposure, consistent with an eventual partial reversal. Predictable selling pressure leads to significantly lower returns after earnings announcements for firms with higher stock compensation. Back of the envelope calculations suggest price multipliers of each dollar invested in the aggregate market ranging from 1.5 to 2.3. These results suggest that predictable price pressure is a widespread result of money flows, rather than an anomaly.

*Co-authored with D. Salomon (Boston College)

This seminar will be organised via Zoom. If you are interested in joining this seminar, please send an email to the secretariat of the Finance Group.