Investment Strategies Based on Voting and Non-Voting Stocks

Abstract

We measure the profitability of an investment in voting stocks, considering the prices of both voting and non-voting stocks. As Niehoff (2016) showed, non-voting stocks’ prices reflect new information on average faster than the prices of the corresponding voting stocks. To exploit this informational advantage, we apply the Q measure of stock mispricing suggested by Baule and Wilke (2016) to construct self-financing trading strategies based on mispriced voting stocks in the German and the Italian stock market. We analyze the risk-adjusted performance of these trading strategies and calculate their implicit trading costs for the 16-years period between 1997 and 2013. As our results show, suchlike strategies outperform several commonly used benchmarks and yield annual Fama-French-5-factor alphas of 11.9% before trading costs. If roundtrip trading costs do not exceed 0.5%, our trading strategies stay profitable and generate statistically significant abnormal returns in excess of well-established benchmarks as the 5-factor model of Fama and French (2015). Our overall findings therefore support the findings of Niehoff (2016) and suggest that individual investors could have exploited informational advantages existing in the non-voting stock market.