Clientele Effect


The term clientele effect refers to a theory that states the price of a security is affected by certain shareholders if a company or fund changes its policies.  The clientele effect assumes investors are attracted to certain securities because of their past practices.


The clientele effect is an investment theory that hypothesizes the investors in a security will have a direct impact on the price of the security when a change in policy affects their investment objective.  This theory is based on the notion certain investors are attracted to a company's stock because of their policies.  These individuals will buy or sell the security if a change in policy takes place that is aligned with, or no longer aligns, with the individual's investment objective.

For example, investors seeking a reliable source of income are attracted to stocks with relatively high dividend yields.  If a company that pays out a high percentage of earnings in the form of dividends were to suddenly lower their dividend payout ratio, these same investors may decide to sell their shares of stock, since it no longer aligns with their investment objective.  The clientele effect would explain the lower price of the company's common stock as these former shareholders reduce the overall demand for these securities.

Related Terms

conservative investing strategy, preservation of capital, 90 - 10 investment strategy, all equities strategy, capital growth strategy, dividend clientele