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

Harrison Hong, Jeffrey D. Kubik and Jeremy Stein

No 2006, Harvard Institute of Economic Research Working Papers from Harvard - Institute of Economic Research

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.

Date: 2003
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Working Paper: The Neighbor's Portfolio: Word-of-Mouth Effects in the Holdings and Trade of Money Managers (2003)
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