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Penny Stocks: A Handy Tool for Enhancing Fund Performance?

Penny Stocks: A Handy Tool for Enhancing Fund Performance? This study analyzes the characteristics of penny stocks and the benefits of including them in fund portfolios. First, we show that penny stocks provide abnormal returns that are not explained by traditional factor models; the liquidity factor seems to account for the excess performance. Second, we find that penny stocks can serve as a powerful investment vehicle for expanding the efficient frontier of the conventional investment set and that including them in fund portfolios improves a fund's performance. Third, we find that penny stocks held more by funds provide excess returns even for a 5‐factor model that includes a liquidity factor. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Asia-Pacific Journal of Financial Studies Wiley

Penny Stocks: A Handy Tool for Enhancing Fund Performance?

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Publisher
Wiley
Copyright
Copyright © 2019 Korean Securities Association
ISSN
2041-9945
eISSN
2041-6156
DOI
10.1111/ajfs.12268
Publisher site
See Article on Publisher Site

Abstract

This study analyzes the characteristics of penny stocks and the benefits of including them in fund portfolios. First, we show that penny stocks provide abnormal returns that are not explained by traditional factor models; the liquidity factor seems to account for the excess performance. Second, we find that penny stocks can serve as a powerful investment vehicle for expanding the efficient frontier of the conventional investment set and that including them in fund portfolios improves a fund's performance. Third, we find that penny stocks held more by funds provide excess returns even for a 5‐factor model that includes a liquidity factor.

Journal

Asia-Pacific Journal of Financial Studies – Wiley

Published: Aug 1, 2019

Keywords: ; ; ;

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