Overpriced Winners


Kent Daniel, Ph.D., Columbia Business School and NBER, Alexander Klos, Ph.D., Kiel University and Kiel Institute for the World Economy, Simon Rottke, Ph.D., FCM, University of Münster

Stocks with low institutional ownership which, over a one-year period leading up to portfolio formation, earn strong positive returns and experience a simultaneous increase in short interest, subsequently earn strikingly low returns over the following five years. The authors argue that the high prices of this set of “overpriced winners” are a result of excessive optimism by a group of investors and arbitrage constraints.


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