Testing the Theory of Common Stock Ownership
77 Pages Posted: 14 Jul 2020 Last revised: 8 Mar 2023
There are 2 versions of this paper
Date Written: July 2020
Abstract
We test if an increase in common ownership changes future expected profits with an event study method. We collect instances of a stock entering the S&P 500 index and identify its product market competitors. We measure the change in institutional and common ownership (with product market rivals) and find that entering stocks experience a significant increase in both. We measure the stock returns of the entrant's product market rivals upon the entry news. We find that increases in common ownership (driven by the whole vector of ownership similarity) cause increases in stock returns, consistent with a hypothesis that common ownership raises profits.
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