A Theory of Large Shareholder Premium

Weihuan Huang, Ph.D. in maths at Shandong University (2015-2020), visiting Ph.D. student at the University of Kansas (2017-2019).
Research interests: non-parametric methods for stochastic processes, portfolio theory, model uncertainty, BSDE, and non-linear expectation theory.

We develop a theoretical model to study large shareholders’ influence on a firm’s equity performance. In a firm’s equity premium, the large shareholders’ influence is measured by a regression coefficient of their portfolio holding. The model shows that large shareholders may invest more proportion of their wealth into the firm than small investors, and the smart small investors may also invest more proportions than those of naive small investors. Calibration shows that, even the current equity premium is negative, a large shareholder’s investment is still plausible. The model also provides a theoretical interpretation why corporations with concentrated ownership averagely outperform those with dispersed ownership. This is a joint work with Prof. Chenghu Ma (Fudan University) and Prof. Yuhong Xu (Soochow University).