Common Mutual Fund Ownership and Systemic Risk*

Michael Iselin, Scott Liao, Haiwen Zhang

Research output: Contribution to journalArticlepeer-review


We examine whether bank connections via common mutual fund ownership serve as a contagion channel affecting the systemic risk of the banking system. Examining this relation is important because common mutual fund ownership has increased dramatically over the past 20 years, and a buildup of systemic risk was at the heart of the 2008–2009 financial crisis. We predict and document that the extent of a bank's connection with other banks via common ownership increases its contribution to systemic risk. We further predict and find that this association is primarily driven by passive mutual funds. We provide evidence that common passive ownership results in higher systemic risk through two mechanisms: nondiscretionary sell-offs of bank stocks and a common pattern of voting. Our results are also robust to two alternate instrumental variable analyses. This study contributes to the literature by documenting an unintended, macro-level consequence of common mutual fund ownership. Our findings broaden the understanding of common ownership as one mechanism through which systemic risk materializes and should be particularly relevant for regulators who seek to prevent future systemic failures.

Original languageEnglish (US)
Pages (from-to)2157-2191
Number of pages35
JournalContemporary Accounting Research
Issue number3
StatePublished - Mar 13 2021

Bibliographical note

Funding Information:
*Accepted by Fabrizio Ferri. We thank Fabrizio Ferri (editor), Alan Webb (editor-in-chief), and two anonymous referees for comments that greatly improved the paper. We also thank Jeff Burks, Saipriya Kamath, Rabih Moussawi, Rene Stulz, Chris Yust, and seminar participants at the Indian School Business Accounting Symposium, CUNY–Baruch, the Univer-sity of Toronto, the University of Minnesota, Villanova University, the 2018 FARS Conference, and the St. Louis Fed and Kelley School of Business 2019 Workshop on Financial Institutions Research for their valuable comments and sug-gestions. We also thank Carlson School of Management, Fisher College of Business, and the Rotman School of Manage-ment for financial support. † Corresponding author.

Publisher Copyright:
© 2021 Canadian Academic Accounting Association.


  • bank ownership
  • common ownership
  • mutual fund
  • systemic risk
  • trading comovement
  • voting


Dive into the research topics of 'Common Mutual Fund Ownership and Systemic Risk*'. Together they form a unique fingerprint.

Cite this