Investor Network: Implications for Information Diffusion and Asset Prices

51 Pages Posted: 16 Dec 2015 Last revised: 16 Feb 2018

See all articles by Chung San-Lin

Chung San-Lin

National Taiwan University

Wenchien Liu

Chung Yuan Christian University - Department of Finance

Wen-Rang Liu

National Taiwan University - Department of Finance

Kevin Tseng

Federal Reserve Bank of Richmond

Date Written: February 6, 2018

Abstract

In this study, we examine the information diffusion of firms in investor networks. Using a unique investor account-level dataset from the Taiwan Stock Exchange from 2005 to 2014, we identify the information diffusion of firms as their centralization in investor networks. Consistent with the theory of investor information networks, we find that central investors trade earlier and are more profitable than peripheral investors. Furthermore, they have greater access to superior, private information based on actual M&A events. More importantly, we find that centralized firms (i.e., firms with more central investors’ networks) experience less delay in prices, and therefore demand lower price delay premiums than peripheral firms. These results suggest that investor networks speed up the incorporation of new information into asset prices, and cause the strength of information diffusion to have a great impact on stock returns.

Keywords: investor network; information diffusion; price delay; asset prices

JEL Classification: G11, G12, G14

Suggested Citation

San-Lin, Chung and Liu, Wenchien and Liu, Wen-Rang and Tseng, Kevin, Investor Network: Implications for Information Diffusion and Asset Prices (February 6, 2018). Available at SSRN: https://ssrn.com/abstract=2704051 or http://dx.doi.org/10.2139/ssrn.2704051

Chung San-Lin

National Taiwan University ( email )

21 Hsiu Chow Rd
Taipei, 10020
Taiwan

Wenchien Liu

Chung Yuan Christian University - Department of Finance ( email )

200 Chung Pei Rd
Chung Li City, 32023
Taiwan

Wen-Rang Liu

National Taiwan University - Department of Finance ( email )

1, Sec. 4, Roosevelt Road
Taipei, 106
Taiwan

Kevin Tseng (Contact Author)

Federal Reserve Bank of Richmond ( email )

530 East Trade St
Charlotte, NC 28202
United States
704-358-2110 (Phone)

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