Pairwise correlations of stock returns and ownership structure

Markus Münster and Martin Walther

Finance Research Letters, 2021, vol. 43, issue C

Abstract: Recent research suggests that competition is reduced by common ownership. Based on this idea, we build a model in which strategic investors have an incentive to reduce the correlation between companies they have invested in. Therefore, we hypothesize that pairwise correlations between stock returns decrease with increasing common strategic ownership. To test this hypothesis empirically, we construct a measure that captures the presence of strategic investors in both companies. Using NYSE data and several control variables, we find a negative relation between this measure and pairwise correlations. This result provides support for the anticompetitive effects of common ownership.

Keywords: Anticompetitive effects; Common ownership; Strategic investors; Ownership structure; Stock return correlation (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1544612321000982
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:43:y:2021:i:c:s1544612321000982

DOI: 10.1016/j.frl.2021.102017

Access Statistics for this article

Finance Research Letters is currently edited by R. Gençay

More articles in Finance Research Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu ().