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

60 Pages Posted: 28 Oct 2020 Last revised: 17 Oct 2022

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

Ontario Tech University

Date Written: May 26, 2021

Abstract

We study how social connectedness affected mutual fund manager trading behavior in the first half of 2020. In the first quarter during which the COVID outbreak occurred, fund managers located in or socially connected to COVID hotspots sold more stock holdings compared to a control group of unconnected managers. The economic impact of social connectedness on stock holdings was comparable to that of COVID hotspots and was elevated among “epicenter” stocks most susceptible to the pandemic shock. In the second quarter, social interaction had an overall negative effect on fund performance, but this effect depended on manager skill; unskilled managers who were connected to the hotspots underperformed, while skillful managers suffered no deleterious effect. Our evidence suggests that social connections can intensify salience bias for all but the most skilled 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 (May 26, 2021). Available at SSRN: https://ssrn.com/abstract=3720117 or http://dx.doi.org/10.2139/ssrn.3720117

Shiu-Yik Au (Contact Author)

University of Manitoba - Asper School of Business ( email )

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

Ming Dong

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

Ontario Tech University ( email )

2000 Simcoe St N
Oshawa, Ontario L1G0C5
Canada

HOME PAGE: http://https://ontariotechu.ca/

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