Testing the Theory of Common Stock Ownership
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.
This research had no special funding and the authors have no relevant financial relationships. Support came from the authors' home institutions of Yale University and Duke University. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.