Does Social Interaction Spread Fear among Institutional Investors? Evidence from COVID-19

29 Pages Posted: 28 Oct 2020 Last revised: 30 Oct 2020

See all articles by Shiu-Yik Au

Shiu-Yik Au

University of Manitoba - Asper School of Business

Ming Dong

York University - Schulich School of Business

Xinyao Zhou

York University

Date Written: October 27, 2020

Abstract

We study how social connectedness affected fund manager stock holdings during the COVID-19 outbreak in the first quarter of 2020. Fund managers located in or socially connected to COVID hotspots sold more stock holdings during the quarter compared to a control group of unconnected managers. The economic impact of social connectedness on stock holdings is comparable to that of COVID hotspots. However, such reductions are panic driven as the unloaded stocks rebounded sharply in the subsequent quarter. Our evidence suggests that social connections can intensify salience bias for institutional investors, and policy makers should be wary of the destabilizing role of social networks during market downturns.

Keywords: social networks, Facebook social connectedness index, COVID-19, salience bias, institutional investors

JEL Classification: G01, G11, G14, G41

Suggested Citation

Au, Shiu-Yik and Dong, Ming and Zhou, Xinyao, Does Social Interaction Spread Fear among Institutional Investors? Evidence from COVID-19 (October 27, 2020). Available at SSRN: https://ssrn.com/abstract=3720117 or http://dx.doi.org/10.2139/ssrn.3720117

Shiu-Yik Au

University of Manitoba - Asper School of Business ( email )

181 Freedman Crescent
Winnipeg, Manitoba R3T 5V4
Canada
(204) 474-9783 (Phone)

Ming Dong (Contact Author)

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
416-736-2100 ext. 77945 (Phone)
416-736-5687 (Fax)

Xinyao Zhou

York University ( email )

North York, Ontario
Canada
4177362100 (Phone)
M3J 1P3 (Fax)

HOME PAGE: http://https://www.yorku.ca/

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