Working Paper: NBER ID: w9711
Authors: Harrison Hong; Jeffrey D. Kubik; Jeremy C. Stein
Abstract: A mutual-fund manager is more likely to hold (or buy, or sell) a particular stock in any quarter if other managers in the same city are holding (or buying, or selling) that same stock. This pattern shows up even when controlling for the distance between the fund manager and the stock in question, so it is distinct from a local-preference effect. It is also robust to a variety of controls for investment styles. These results can be interpreted in terms of an epidemic model in which investors spread information about stocks to one another by word of mouth.
Keywords: No keywords provided
JEL Codes: D83; G11; G20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| mutual fund managers in the same city influence each other's investment decisions (G41) | fund manager's holdings of a stock as a fraction of her total portfolio increases (G11) |
| peer actions of other city-based fund managers (G23) | fund manager's holdings of a stock as a fraction of her total portfolio increases (G11) |
| fund manager's holdings of a stock as a fraction of her total portfolio increases (G11) | fund manager's buy/sell actions of that stock (G34) |
| Regulation Fair Disclosure (Reg FD) does not change the influence of city-based peer actions (G18) | trading behavior patterns remain robust (E32) |