Common Asset Holdings and Stock Return Comovement

31 Pages Posted: 11 Apr 2017

See all articles by Daniel Fricke

Daniel Fricke

Deutsche Bundesbank

Charles Savoie

University of Oxford - Mathematical Institute; University of Oxford - Institute for New Economic Thinking at the Oxford Martin School

Date Written: April 10, 2017

Abstract

A growing literature highlights the effect of common asset holdings on market dynamics. Focusing on relatively large stocks, Antón and Polk (2014) find that assets with many common investors comove more strongly in the future than otherwise similar stocks. In order to acknowledge the shift in institutional preferences over the last two decades we perform a similar analysis but also include small stocks in our sample. Our main findings are as follows: first, we document a strong increase in both institutional ownership and common asset holdings over the sample period, particularly so for the smallest stocks. Second, raw stock return correlations have also increased strongly over time, while the increase is much more modest for factor model residual correlations. Third, we confirm that common ownership is significantly related to future return correlations for relatively large stocks, but the relationship appears to become less important over time. For relatively small stocks the relationship is often insignificant, but the effect appears to become more important over time. Lastly, we find no evidence that institutional ownership Granger-causes return correlations for the subset of small stocks.

Keywords: asset management; institutional investors; return comovement; common ownership

JEL Classification: G10, G11, G23

Suggested Citation

Fricke, Daniel and Savoie, Charles, Common Asset Holdings and Stock Return Comovement (April 10, 2017). Available at SSRN: https://ssrn.com/abstract=2949853 or http://dx.doi.org/10.2139/ssrn.2949853

Daniel Fricke (Contact Author)

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Charles Savoie

University of Oxford - Mathematical Institute ( email )

Andrew Wiles Building
Woodstock Road
Oxford, OX2 6GG
United Kingdom

University of Oxford - Institute for New Economic Thinking at the Oxford Martin School ( email )

Eagle House
Walton Well Road
Oxford, OX2 6ED
United Kingdom

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