Testing the Theory of Common Stock Ownership

77 Pages Posted: 14 Jul 2020

See all articles by Lysle Boller

Lysle Boller

Duke Economics Department

Fiona M. Scott Morton

Yale School of Management; National Bureau of Economic Research (NBER)

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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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Suggested Citation

Boller, Lysle and Scott Morton, Fiona M., Testing the Theory of Common Stock Ownership (July 2020). NBER Working Paper No. w27515, Available at SSRN: https://ssrn.com/abstract=3649879

Lysle Boller (Contact Author)

Duke Economics Department ( email )

100 Fuqua Drive
Durham, NC 27708-0204
United States

Fiona M. Scott Morton

Yale School of Management ( email )

New Haven, CT 06520
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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