The negative externalities of fund holdings: A network analysis of systemic risk contagion

Key findings from this study

• The study found that fund holding networks among financial institutions significantly exacerbate systemic financial risk through governance convergence, stock price synchronicity, and asset structure homogenization.
• The researchers demonstrate that financial institutions with higher network centrality positions exercise greater influence on aggregate systemic risk levels.
• The authors report that enhanced corporate governance standards and information disclosure quality mitigate the systemic risk amplification caused by fund holding networks.

Overview

Fund holdings among financial institutions form network structures that transmit systemic risk across interconnected entities. Analysis of listed financial institutions in China from 2013 to 2024 reveals that such networks significantly amplify systemic financial risk. This occurs through three primary mechanisms: convergence in governance practices, synchronization of share prices, and homogenization of asset structures among institutions held by common funds.

Methods and approach

The study constructs a fund holding network mapping relationships among listed financial institutions across the 2013-2024 period. Network analysis quantifies institutional positions within this structure and measures centrality metrics. Empirical methods assess how network characteristics influence systemic financial risk while identifying specific transmission mechanisms. The analysis examines governance convergence, equity price movements, and asset composition patterns as channels through which fund ownership concentrations propagate risk.

Results

Fund holding networks substantially increase systemic financial risk exposure across connected institutions. Financial institutions occupying higher centrality positions within the network exert disproportionate influence on overall systemic risk levels. Three distinct mechanisms amplify this contagion effect: first, governance practices converge among institutions held by the same funds; second, stock prices synchronize across these institutions; third, asset structures become increasingly homogeneous. Governance quality improvements and enhanced information disclosure reduce systemic risk in held institutions. Conversely, concentrated fund ownership in financial institutions intensifies network-driven systemic risk effects.

Implications

The findings establish fund shareholding networks as material vectors for systemic risk transmission within financial sectors. Institutional ownership concentration creates correlated exposures that propagate shocks across the network. Policymakers must address fund ownership concentration as a direct policy lever for reducing systemic vulnerability. Regulatory frameworks should incorporate network-level analyses when assessing systemic risk dimensions not captured by institution-level metrics alone.

Scope and limitations

This summary is based on the study abstract and available metadata. It does not include a full analysis of the complete paper, supplementary materials, or underlying datasets unless explicitly stated. Findings should be interpreted in the context of the original publication.