Institutional Ownership and Tail Risk Comovement in Banks

56 Pages Posted: 16 Jul 2019 Last revised: 20 Feb 2021

See all articles by Emmanuel T. De George

Emmanuel T. De George

University of Miami

Nayana Reiter

University of Toronto - Rotman School of Management

Christina Synn

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School

Christopher D. Williams

University of Michigan, Stephen M. Ross School of Business

Date Written: December 1, 2020

Abstract

Recent regulatory discussions concentrate on the role institutional investors play in the financial sector. We investigate whether institutional ownership (IO) is related to tail risk comovement in banks. We find robust evidence suggesting that IO is positively associated with a bank’s future tail risk. We find this relationship is stronger during economic downturns at the economy-wide level, as well as for banks demonstrating greater capital needs. Correspondingly, we find that there is a greater reduction in lending during recessionary periods for banks with higher levels of IO. Our results suggest a trading mechanism through which high turnover institutions in particular play a role in increasing tail risk comovement. We find the relationship exists in both overlapping and non-overlapping ownership, and the result is concentrated when the IO base exhibits low monitoring incentives. Lastly, we find evidence suggesting that disclosure may play a role in mitigating the relationship between IO and tail risk.

Keywords: Institutional Ownership, Tail-Risk Comovement, Banks, Disclosure

Suggested Citation

De George, Emmanuel T. and Reiter, Nayana and Synn, Christina and Williams, Christopher D., Institutional Ownership and Tail Risk Comovement in Banks (December 1, 2020). Rotman School of Management Working Paper No. 3420516, University of Miami Business School Research Paper No. 3420516, Available at SSRN: https://ssrn.com/abstract=3420516 or http://dx.doi.org/10.2139/ssrn.3420516

Emmanuel T. De George (Contact Author)

University of Miami ( email )

Coral Gables, FL 33146-6531
United States
305-284-2273 (Phone)

Nayana Reiter

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

Christina Synn

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School

McColl Building
Chapel Hill, NC 27599-3490
United States

Christopher D. Williams

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
(734)647-2842 (Phone)

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