Institutional Ownership, Stock Illiquidity, and Momentum Persistence

Summary

The note proposes a behavioral explanation for differences in stock momentum: investors may underreact to firm-specific news, causing prices to adjust gradually. It asks whether this effect should be stronger or persist longer among stocks held more by households than institutions, on the premise that household investors may monitor news and portfolios less frequently.

It also suggests that illiquid stocks could incorporate news more slowly, potentially exhibiting stronger or longer-lasting momentum. The question extends this reasoning to momentum differences across asset classes and seeks empirical evidence or references. The document itself supplies no data, citations, or test results, so these relationships remain hypotheses rather than established findings. Any empirical investigation would need to distinguish gradual information diffusion from other explanations and account for how ownership, liquidity, and momentum are measured.

Key ideas

• Underreaction to firm-specific news is offered as a possible explanation for stock momentum.
• The note hypothesizes that household-heavy stocks may show stronger or more persistent momentum.
• Lower liquidity is proposed as another possible source of slower price adjustment and momentum.
• The document raises empirical questions but provides no evidence or references to resolve them.

Tags

# Is there evidence that illiquid stocks, held less by institutions, have more price momentum?


# Is there evidence that illiquid stocks, held less by institutions, have more price momentum?












(One of) the standard explanation people gave for momentum is under-reaction of stockholders to firm-specific news.

If this is true, then it seems that these stocks should have more momentum, and also a longer horizon of momentum returns:

1) stocks held less by institutions and more by households (who check their portfolios and news less frequently) 2) stocks that are less liquid (news go into prices slower)

The same could potentially be said about the difference in momentum across asset classes.

Is there any evidence? Any references/ thoughts welcome.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.