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

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

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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File URL: http://www.economics.harvard.edu/pub/hier/2003/HIER2006.pdf
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Paper provided by Harvard - Institute of Economic Research in its series Harvard Institute of Economic Research Working Papers with number 2006.

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Date of creation: 2003
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Handle: RePEc:fth:harver:2006
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  7. Edward L. Glaeser & Bruce Sacerdote & José A. Scheinkman, 1996. "Crime and Social Interactions," The Quarterly Journal of Economics, Oxford University Press, vol. 111(2), pages 507-548.
  8. Scharfstein, David S & Stein, Jeremy C, 1990. "Herd Behavior and Investment," American Economic Review, American Economic Association, vol. 80(3), pages 465-79, June.
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  10. Guy Dumais & Glenn Ellison & Edward Glaeser, 1997. "Geographic Concentration as a Dynamic Process," NBER Working Papers 6270, National Bureau of Economic Research, Inc.
  11. Sendhil Mullainathan & Marianne Bertrand & Erzo F.P. Luttmer, 1998. "Network Effects and Welfare Cultures," Working papers 98-21, Massachusetts Institute of Technology (MIT), Department of Economics.
  12. Case, A.C. & Katz, L.F., 1991. "The Company You Keep: The Effects Of Family And Neighborhood On Disadvantaged Younths," Harvard Institute of Economic Research Working Papers 1555, Harvard - Institute of Economic Research.
  13. Joseph Chen & Harrison Hong & Ming Huang & Jeffrey D. Kubik, 2004. "Does Fund Size Erode Mutual Fund Performance? The Role of Liquidity and Organization," American Economic Review, American Economic Association, vol. 94(5), pages 1276-1302, December.
  14. Allen N. Berger & Nathan H. Miller & Mitchell A. Petersen & Raghuram G. Rajan & Jeremy C. Stein, 2002. "Does function follow organizational form? evidence from the lending practices of large and small banks," Proceedings 815, Federal Reserve Bank of Chicago.
  15. Edward L. Glaeser & Jose Scheinkman, 2000. "Non-Market Interactions," NBER Working Papers 8053, National Bureau of Economic Research, Inc.
  16. Barberis, Nicholas & Shleifer, Andrei & Vishny, Robert, 1998. "A model of investor sentiment," Journal of Financial Economics, Elsevier, vol. 49(3), pages 307-343, September.
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  18. Glenn Ellison & Drew Fudenberg, 1995. "Word-of-Mouth Communication and Social Learning," The Quarterly Journal of Economics, Oxford University Press, vol. 110(1), pages 93-125.
  19. Harrison Hong & Jeffrey D. Kubik & Jeremy C. Stein, 2001. "Social Interaction and Stock-Market Participation," NBER Working Papers 8358, National Bureau of Economic Research, Inc.
  20. Shiller, 021Robert J. & Pound, John, 1989. "Survey evidence on diffusion of interest and information among investors," Journal of Economic Behavior & Organization, Elsevier, vol. 12(1), pages 47-66, August.
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