The Social Dynamics of Performance

80 Pages Posted: 12 Jun 2012 Last revised: 26 Oct 2012

See all articles by Julien Cujean

Julien Cujean

Ecole Polytechnique Fédérale de Lausanne

Date Written: September 13, 2012


A pervasive empirical finding is that mutual fund managers do not maintain their performance. In this paper, I show that social interactions can explain this fact. To do so, I allow a “crowd” of managers to meet at random times and exchange ideas within a rational-expectations equilibrium model. I show that social interactions simultaneously allow prices to become more efficient and better-informed managers to reap larger profits. Yet, social interactions cause managers’ alpha to become insignificant. The main implication is that increased efficiency causes managers to implement passive investment strategies for which they should not be rewarded. In addition, by increasing price informativeness, social interactions produce momentum in stock returns and induce most managers to become momentum traders, consistent with empirical findings.

Keywords: rational-expectations equilibrium, information percolation, social interactions, performance measure, performance persistence, momentum

JEL Classification: D53, D82, D83, D85, G14, G23

Suggested Citation

Cujean, Julien, The Social Dynamics of Performance (September 13, 2012). Paris December 2012 Finance Meeting EUROFIDAI-AFFI Paper, Available at SSRN: or

Julien Cujean (Contact Author)

Ecole Polytechnique Fédérale de Lausanne ( email )

c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900

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