The impact of common ownership on investors' perceived risks

Research output: Chapter in Book/Report/Conference proceedingChapterScientificpeer-review

Abstract

In this paper, we examine the impact of common ownership on investors' perceived risk in the U.S. banking sector between 2009 and 2024, using the implied volatility skew as a proxy for systemic risk perception. Prior literature suggests that common institutional ownership can affect the perceived risk of a bank. To test this, three new methods for measuring common ownership are introduced, capturing the extent of institutional investors' holdings across competing banks and the industry. A fixed effects panel regression is employed to analyse the relationship between common ownership and implied volatility skew. We find a significant negative correlation, suggesting that increased common ownership corresponds to lower perceived systemic risk. Further analyses show that higher common ownership leads to a convergence in the term structure, with the long-term volatility skew declining faster than its short-term counterpart. Evidence of a lead-lag relationship indicates that rising common ownership precedes reduced implied volatility in subsequent quarters. Overall, our findings shed light on the evolving role of institutional investors in shaping market risk perceptions.
Original languageEnglish
Title of host publicationOxford handbook of corporate finance
EditorsAnna Grossman, Sofia Johan, Geoffrey Wood
PublisherOxford University Press
Publication statusAccepted/In press - 20 Oct 2025

Publication series

NameOxford Handbooks
PublisherOxford University Press

Keywords

  • common ownership, implied volatility skew, systemic risk

Fingerprint

Dive into the research topics of 'The impact of common ownership on investors' perceived risks'. Together they form a unique fingerprint.

Cite this