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Diversification driven demand for large stock
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DOI：10.1016/j.jfineco.2025.104109.png)
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Abstract
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I show that as a portfolio’s value concentration increases, actively managed portfolios predictably trim large positions, maintaining a level of practical diversification. This rebalancing channel is concentrated at thresholds implied by regulatory guidelines and by a fund’s own risk management histories. Since larger stocks are typically held widely and in large weights, they experience a coordinated contrarian trading demand that originates from this form of risk management. Diversification driven demand captures a novel return-reversal pattern in the large stock portfolios. Compensating this source of demand accentuates momentum returns during the modern sample period (1990 to 2022).
Keywords:
Momentum
Mutual funds
Portfolio management
Price pressure
Reversal
Risk management
Stock demand
G10
G11
G14
G40
and G41
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JOURNAL OF FINANCE
JOURNAL OF FINANCEIF9.5
PREAI
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