Why Do Investors Hold Overpriced Shares?

Paul Schultz

♦ Stocks that are expensive to borrow underperform significantly and for long periods of time. Every share must be held by an investor who doesn’t lend it out and hence loses money. I find no evidence that investors hold these stocks in anticipation of lending them in the future. Instead, investors appear to hold these stocks for short-term trading. When turnover is high, high fee stocks are overpriced and underperform. When turnover is low, high fee stock prices are low and they earn positive returns. More Robinhood investors hold shares when turnover is high than when it is low.

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