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The Neighbor's Portfolio: Word-of-Mouth Effects in the Holdings and Trade of Money Managers

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  • Harrison Hong
  • Jeffrey D. Kubik
  • Jeremy C. Stein

Abstract

A mutual-fund manager is more likely to hold (or buy, or sell) a particular stock in any quarter if other managers in the same city are holding (or buying, or selling) that same stock. This pattern shows up even when controlling for the distance between the fund manager and the stock in question, so it is distinct from a local-preference effect. It is also robust to a variety of controls for investment styles. These results can be interpreted in terms of an epidemic model in which investors spread information about stocks to one another by word of mouth.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9711.

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Date of creation: May 2003
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Publication status: published as Hong, Harrison, Jeffrey D. Kubik and Jeremy C. Stein. “Thy Neighbor’s Portfolio: Word-of-Mouth Effects in the Holdings and Trades of Money Managers." Journal of Finance 60 (2005): 2801-2824.
Handle: RePEc:nbr:nberwo:9711

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