Neglected Firms : Evidence from Positions Funds Do not Hold

We show that firms earn positive returns when funds most familiar with the company, former investors, avoid investing. In contrast, taking a long position in firms with other bearish fund actions, such as shorting or reducing a position, generates negative returns. We link the phenomenon to neglect by showing that firms with many former investors have depressed earnings expectations, high uncertainty, and that the under-valuation unwinds in response to an increase in attention. Overall, we add to the literature on the pricing implications of a firms’ investor base by providing the first evidence that the characteristics of non-investors matter too