Count Models of Social Networks in Finance
Harrison G. Hong
Princeton University - Department of Economics; National Bureau of Economic Research (NBER)
Department of Finance, Guanghua School of Management, Peking University
December 28, 2014
Social networks are thought to be important for the investment and performance of mutual fund managers. We propose a measure of whether a manager is part of a network using only data on the distribution of the number of stocks headquartered in a given city that are held by managers. For some cities, the count distribution is roughly Poisson. However, for a significant fraction of cities, the count distribution is highly overdispersed Poisson --- where most managers have a couple of picks but a few managers have many picks. We show that the degree of overdispersion is a theoretically well-motivated measure of network influence and that managers with concentrated stock picks in a city are likely to be part of a network in that city. These managers indeed significantly outperform other managers by around 1.6% per annum.
Number of Pages in PDF File: 46
Keywords: Social Networks, Poisson Regressions, Investor Behavior
JEL Classification: G1, G2, G3
Date posted: January 8, 2014 ; Last revised: December 28, 2014
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