Common-Ownership and Portfolio Rebalancing

Category: Finance Brown Bag Seminar
When: 27 March 2019
, 14:00
 - 15:00
Where: HoF E.01 ("Deutsche Bank")
Speaker: Eyub Yegen

Authors: Eyub Yegen (University of Toronto)

Title: Common-Ownership and Portfolio Rebalancing

Abstract: The empirical literature on the potential collusive eff ects of common-ownership relies heavily on financial institution mergers to make causal inferences. I find that more than 85% of newlyformed common-ownership relationships due to such financial institution mergers are no longer commonly-held by the acquiring institution during the post-merger period (with most being liquidated in the first quarter following the merger). Firms that are no longer commonly-held by the merged institution drive the anti-competitive results found in previous studies. The fact that portfolio firms are so quickly rebalanced casts doubt on the utility of financial institution mergers as a natural experiment. I also find evidence that portfolio rebalancing post-merger is driven by other factors, such as portfolio diversification or index tracking. Further, I find no significant positive risk-adjusted returns for a common-ownership based portfolio strategy, suggesting that investors do not make a profit from commonly-held stocks. Taken together, these findings suggest that empirical basis for claiming collusive eff ects of common-ownership is weaker than it appears and there is no strong evidence that provides a basis for policy concerns about institutional commonownership.