Is Hard and Soft Information Substitutable? Evidence from Lockdown

43 Pages Posted: 11 May 2021 Last revised: 28 May 2021

See all articles by Jennie Bai

Jennie Bai

Georgetown University - Department of Finance; National Bureau of Economic Research (NBER)

Massimo Massa

INSEAD - Finance

Date Written: May 11, 2021


We study the degree of information substitutability in the financial market. Exploiting the cross-sectional and time-series variations of the pandemic-triggered lockdowns that have hampered people's physical interactions hence the ability to collect, process, and transmit soft information, we investigate how the difficulty/inability to use soft information has prompted a switch to hard information, and its implication on fund performance. We show that lockdown reduces fund investment in proximate stocks and generate a portfolio rebalancing towards distant stocks. The rebalancing has negative implications on fund performance by reducing fund raw (excess) return of an additional 0.76% (0.29%) per month during lockdown, suggesting that soft and hard information is not easily substitutable. We show that soft information originates mainly with geographic proximity and human interactions, mostly in cafe, restaurants, bars, and fitness centers. This suggests that the virtual world based on Zoom/Skype/Team has direct negative implications on the ability of collecting soft information and therefore affects strategies relying on them such as proximity investment.

Keywords: mutual funds; soft information; COVID-19; proximity investing

JEL Classification: G12, G14, G23

Suggested Citation

Bai, Jennie and Massa, Massimo, Is Hard and Soft Information Substitutable? Evidence from Lockdown (May 11, 2021). Georgetown McDonough School of Business Research Paper No. 3843782, 2021/29/FIN, Available at SSRN: or

Jennie Bai (Contact Author)

Georgetown University - Department of Finance ( email )

3700 O Street, NW
Washington, DC 20057
United States


National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Massimo Massa

INSEAD - Finance ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
+33 1 6072 4481 (Phone)
+33 1 6072 4045 (Fax)

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