Premium
Penny Stocks: A Handy Tool for Enhancing Fund Performance?
Author(s) -
Song Inwook,
Park Young K.
Publication year - 2019
Publication title -
asia‐pacific journal of financial studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.375
H-Index - 15
eISSN - 2041-6156
pISSN - 2041-9945
DOI - 10.1111/ajfs.12268
Subject(s) - market liquidity , economics , investment (military) , excess return , financial economics , frontier , monetary economics , business , geography , context (archaeology) , archaeology , politics , political science , law
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.