Overview
A handful of academic papers on the “common ownership hypothesis” claim that institutional investors decrease competition and raise prices for consumers merely by holding stock in competing firms in concentrated industries. This research, however, is hotly contested, and the papers fail to make their case. There is no valid empirical basis to conclude that investment advisers are causing competitive harm through the management of broadly diversified portfolios on behalf of clients.
Despite the hypothesis’s weak foundations, some academics have proposed draconian restrictions on institutional investors that would harm millions of retail investors, the equity markets, and the economy. Institutional investing through pension funds and mutual funds provides enormous benefits to the public and the economy by giving individuals access to markets through professionally managed, diversified portfolios with extremely low costs. Millions of Americans use these funds to save for their most important financial goals. Policymakers should not even consider proposals that could reduce these benefits based on the speculative and disputed claims of the proponents of the common ownership hypothesis.
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News & Publications
News & Publications
US Retail Investment Under Attack from Bunk ‘Common Ownership’ Theory
Advancing new red tape based on discredited idea would only harm investors and our capital markets. By Eric J. Pan ( As published in the Financial Times, July 19, 2024) Ambitious policymakers from both big US political parties are looking to make hay of the failed idea that retail investment funds hold too much stock in our largest companies. They are hoping to advance headline-grabbing policy agendas that would ultimately harm everyday American investors. As retail investment funds have grown, they hold larger—though still minority—stakes in a range of companies. This has inspired the so...
Common Sense Doesn’t Support Common Ownership Hypothesis
Would it surprise you that your savings in mutual funds and exchange-traded funds (ETFs)—including in your individual retirement account (IRA) or 401(k)—pose anticompetitive concerns, possibly harming consumers by driving up the prices of goods and services? Seems odd, right? But it’s a notion put forth by some academics and it’s been picked up by regulators too. [1] When you look at the diversified portfolios of these funds, which people use to save for their most important goals, this idea just doesn’t add up. The idea, called common ownership, goes something like this. To meet its...
Common Ownership: Ignoring the Age-Old Conflict Between Owners and Managers
The claim that competition in a concentrated industry suffers when institutional investors own shares in firms across that industry continues to garner attention, as advocates pen op-eds and seek press attention. But as more and more experts examine “the common ownership story,” critical commentary is tearing large holes in this claim. Both the theoretical and empirical bases for this “story” are looking increasingly threadbare. In his first public remarks as a member of the Federal Trade Commission, Commissioner Noah Joshua Phillips tackled what he called “the common ownership story”—and...
Common Ownership: Faulty Assumptions on Investors’ ‘Economic Interests’
The claim that competition in a concentrated industry suffers when institutional investors hold shares in firms across that industry continues to garner attention, as advocates pen op-eds and seek press attention. But as more and more experts examine what one official calls “the common ownership story,” critical commentary is tearing large holes in this claim. Both the theoretical and empirical bases for this “story” are looking increasingly threadbare. In “ The Case for Doing Nothing About Institutional Investors’ Common Ownership of Small Stakes in Competing Firms,” two scholars from the...
Additional Resources
- Selected Papers on the Common Ownership Hypothesis (Apr 22, 2020)
- Common Ownership: An EU Perspective, Alec J. Burnside and Adam Kidane (Mar 6, 2020)
- Common Ownership Data is Incorrect, BlackRock (Feb 1, 2019)
- What People Are Saying on Common Ownership and Institutional Investment Theories (pdf) (Dec 6, 2018)