13 Ownership Dispersion
EPFR has a set of 2 monthly “Ownership Dispersion” indicators that try to identify if there is any concentrated ownership of a stock.
The idea behind the following “Ownership Dispersion” indicators is to identify whether stocks are held by a wider or smaller group of fund managers. By historically testing this factor literature suggests that a very concentrated ownership suggests it is a bad thing for a stocks sharpe ratio and overall rick outlook. Generally, it is better to pick stocks with a broad range of investors, as higher ownership dispersion has been associated with lower stock volatility.
Herfindahl
Measures the % weight held in a stock by each individual fund, and the ending AuM of the fund. It represents a measurement of owner dispersion.
\[\text{Herfindahl}^{[1]} \equiv 1- \frac{\sum (\omega \times A)^2}{(\sum \omega \times A)^2}\] where:
\(\begin{align} \omega & \equiv \text{% weight held by a fund in a security} \\ A & \equiv \text{dollar ending assets of a fund} \end{align}\)
Interpretation Herfindahl
A small value indicates that a small number of funds hold the majority of the stock (i.e. less dispersed, more concentrated ownership). Conversely, a large value indicates that many funds hold smaller amounts of the stock.
Example Herfindahl
Below shows a snippet of what EPFR’s Herfindahl Files contain:
Location: '/StockFlows5.0/QuantitativeFactors/Monthly/Herfindahl/Aggregate/Herfindahl2022Q4.txt'
| ReportDate | HSecurityId | SecurityName | Herfindahl | |
|---|---|---|---|---|
| 682 | 12/31/2022 12:00:00 AM | 7041220 | Apple Inc Common Stock | 0.9494 |
| 5554 | 12/31/2022 12:00:00 AM | 7049454 | Tesla Inc Common Stock | 0.9457 |
| 569 | 12/31/2022 12:00:00 AM | 7041046 | Amazon.com Common Stock | 0.9505 |
| 10048 | 12/31/2022 12:00:00 AM | 7057091 | Microsoft Corp Common Stock | 0.9576 |
| 8549 | 12/31/2022 12:00:00 AM | 7054419 | Exxon Mobil Corp Common Stock | 0.9507 |
| 9844 | 12/31/2022 12:00:00 AM | 7056752 | Netflix Inc Common Stock | 0.9464 |
| 13946 | 12/31/2022 12:00:00 AM | 7063679 | Visa Inc USA Class A | 0.9648 |
Fund Count
Counts the number of funds holding some positive weight of a stock.
\[\text{FundCt}^{[2]} \equiv \sum sgn(\omega)\]
where:
\(\begin{align} \omega & \equiv \text{% weight held by a fund in a security} \end{align}\)
References
[2] Barabanov , S. S. (2003). The relationship between institutional ownership, concentration of ownership, bid ask spread, and returns on NASDAQ stocks.
[3] Chen, J., Hong, H., & Stein, J. C. (2002). Breadth of ownership and stock returns. Journal of financial Economics, 66(2 3), 171 205.