Measuring Stock Cost Concentration from a Chosen Share of Holdings

Summary

The document explains a cost-concentration measure for the estimated purchase costs of a selected share of investors’ holdings. It defines the measure as the difference between the upper and lower bounds of that cost interval divided by their sum. A narrower interval produces a lower value and indicates that costs are more concentrated; a wider interval produces a higher value and indicates greater dispersion. The examples compare two intervals for the same 90% share and illustrate how the broader range yields a higher concentration reading.

This is a descriptive factor concept, with a pointer to further material on using chip-distribution factors in stock selection. The document does not explain how the underlying investor cost distribution is estimated, how holdings or trading activity are observed, or whether the measure predicts returns. Its examples clarify the arithmetic and interpretation, but they do not establish that low concentration is a profitable signal. Data quality, market coverage, and the chosen share of holdings may affect the result, so applications require independent validation.

Key ideas

• The measure summarizes the width of the estimated cost interval containing a selected share of holdings.
• It divides the interval’s high-low difference by the sum of its high and low bounds.
• A lower reading corresponds to a narrower interval and greater estimated cost concentration.
• The examples illustrate the formula but do not test its predictive value for stock returns.
• The method does not describe how the underlying cost distribution is estimated.

Tags

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