Year: 2007
Type: article
Abstract: This article applies the methodology of Bai and Ng (2002, 2004) for decomposing panel data into systematic and idiosyncratic components to both stock returns and turnover panels. This approach works well for both returns and turnover, despite the presence of severe heteroscedasticity and nonstationarity of individual stocks' turnover. We test the mutual fund separation model of Lo and Wang (2000). Trading due to systematic risk in returns can account for 66% of systematic turnover. Thus, portfolio rebalancing due to systematic risk is a very important motive for stock trading. Finally, several common turnover measures may understate the impact of stock trading.
Source: Review of Financial Studies
DOI: 10.1093/rfs/hhm038
Authors: K. J. Martijn Cremers, Jianping Mei
Institutions: Yale University, New York University
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W1995423104