The People in Your Neighborhood: Social Interactions and Mutual Fund Portfolios

62 Pages Posted: 27 Jun 2012 Last revised: 13 May 2014

Veronika Krepely Pool

Indiana University - Kelley School of Business - Department of Finance

Noah Stoffman

Indiana University - Kelley School of Business - Department of Finance

Scott E. Yonker

Cornell University - Dyson School of Applied Economics and Management

Date Written: December 5, 2013

Abstract

We find that socially connected fund managers have more similar holdings and trades. The portfolio overlap of funds whose managers reside in the same neighborhood is considerably higher than that of funds whose managers live in the same city but in different neighborhoods. These effects are larger when managers are neighbors longer or are of a similar ethnic background, and are not explained by preferences. Valuable information is transmitted through these peer networks: a long-short strategy composed of stocks purchased minus sold by neighboring managers delivers positive risk-adjusted returns. Unlike prior empirical work, our tests disentangle the effects of social interactions from community effects.

Keywords: Mutual funds, social networks, word-of-mouth

Suggested Citation

Pool, Veronika Krepely and Stoffman, Noah and Yonker, Scott E., The People in Your Neighborhood: Social Interactions and Mutual Fund Portfolios (December 5, 2013). Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2093159 or http://dx.doi.org/10.2139/ssrn.2093159

Veronika Krepely Pool

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States

Noah Stoffman (Contact Author)

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
(812) 856-5664 (Phone)

HOME PAGE: http://kelley.iu.edu/nstoffma/

Scott E. Yonker

Cornell University - Dyson School of Applied Economics and Management ( email )

Ithaca, NY
United States

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