Count Models of Social Networks in Finance

46 Pages Posted: 8 Jan 2014 Last revised: 22 Jul 2015

Harrison G. Hong

Columbia University, Graduate School of Arts and Sciences, Department of Economics; National Bureau of Economic Research (NBER)

Jiangmin Xu

Department of Finance, Guanghua School of Management, Peking University

Multiple version iconThere are 2 versions of this paper

Date Written: December 28, 2014

Abstract

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.

Keywords: Social Networks, Poisson Regressions, Investor Behavior

JEL Classification: G1, G2, G3

Suggested Citation

Hong, Harrison G. and Xu, Jiangmin, Count Models of Social Networks in Finance (December 28, 2014). Available at SSRN: https://ssrn.com/abstract=2375461 or http://dx.doi.org/10.2139/ssrn.2375461

Harrison G. Hong (Contact Author)

Columbia University, Graduate School of Arts and Sciences, Department of Economics ( email )

420 W. 118th Street
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Jiangmin Xu

Department of Finance, Guanghua School of Management, Peking University ( email )

5 Yiheyuan Road
Beijing 100871
China

Paper statistics

Downloads
304
Rank
37,569
Abstract Views
2,663