Talking Your Book: Social Networks and Price Discovery

Posted: 23 Feb 2011 Last revised: 17 Aug 2014

Wesley R. Gray

Alpha Architect; Drexel University - LeBow College of Business

Andrew E. Kern

University of Missouri - Trulaske College of Business

Date Written: February 22, 2011

Abstract

We study how professional investors use social networks to impound price-relevant information into asset prices. Exploiting novel data from an online social network that facilitates information sharing among fund managers, we find that long (short) recommendations released into the private network generate cumulative abnormal returns of 3.61% (-4.90%) over a twenty-day window. These results suggest that social networks play a direct role in facilitating the price discovery process.

Keywords: Networks, Hedge Funds, Market Efficiency

JEL Classification: G10, G11, G14

Suggested Citation

Gray, Wesley R. and Kern, Andrew E., Talking Your Book: Social Networks and Price Discovery (February 22, 2011). Available at SSRN: https://ssrn.com/abstract=1767452 or http://dx.doi.org/10.2139/ssrn.1767452

Wesley R. Gray (Contact Author)

Alpha Architect ( email )

213 Foxcroft Road
Broomall, PA 19008
United States
7732304727 (Phone)

HOME PAGE: http://www.alphaarchitect.com

Drexel University - LeBow College of Business ( email )

3141 Chestnut St
Philadelphia, PA 19104
United States

HOME PAGE: http://www.lebow.drexel.edu/corporate-services/corporate-and-executive-education/executive-faculty

Andrew E. Kern

University of Missouri - Trulaske College of Business ( email )

403 Cornell Hall
Columbia, MO 65211
United States

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