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Common institutional blockholders and tail risk

Author

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  • Agnes Cheng, C.S.
  • Xie, Jing
  • Zhong, Yuxiang
Abstract
We find that the tail risk of a firm's stock returns is positively affected by the tail risk of other firms held by the same common institutional blockholder (CIB). The CIB peer effect on tail risk increases (decreases) after exogenous initiations (terminations) of peer connections via CIB ownership, consistent with a causal interpretation. Our findings support the disclosure herding hypothesis, which predicts that firms release bad news after other firms’ bad news announcements. In addition, commonality in the real investment decisions of a firm and its CIB peers, along with the common trading pressure of these firms, contribute to the positive relationship between firms’ tail risk, highlighting the multifaceted roles of institutional investors in the contagion of firms’ tail risk. Finally, the CIB peer effect on tail risk is stronger when the CEO is more risk averse, CIBs hold more shares, or CIBs are pressure-sensitive (i.e., banks and insurance companies).

Suggested Citation

  • Agnes Cheng, C.S. & Xie, Jing & Zhong, Yuxiang, 2023. "Common institutional blockholders and tail risk," Journal of Banking & Finance, Elsevier, vol. 148(C).
    • Handle: RePEc:eee:jbfina:v:148:y:2023:i:c:s037842662200303x
    DOI: 10.1016/j.jbankfin.2022.106723
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    2. Liu, Jie & Wu, Chonglin & Zheng, Wanqing & Lin, Gengyan, 2023. "Monitor or manipulator? The effect of institutional ownership on market manipulation," Finance Research Letters, Elsevier, vol. 58(PB).

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    More about this item

    Keywords

    Tail risk; Institutional investors; Peer effects; Corporate disclosure; Real investment; Trading;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General

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