Inferring latent social networks from stock holdings

Harrison Hong and Jiangmin Xu

Journal of Financial Economics, 2019, vol. 131, issue 2, 323-344

Abstract: We infer the latent social networks of investors using data on their stock holdings. We map linkages to portfolio weights using a portfolio-choice model. The precision of an investor’s private signal about firm value is assumed to increase with his connections in the city where the firm is headquartered. Using money-manager data, we find that managerial linkages to a city are overly dispersed relative to the Erdös–Rényi model of i.i.d. connections. Managers at the tail of this distribution with non-i.i.d. linkages have more university alumni in that city. Their stock holdings there outperform their holdings in other cities.

Keywords: Social networks; Poisson regressions; Investor behavior (search for similar items in EconPapers)
JEL-codes: G11 G23 G32 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:131:y:2019:i:2:p:323-344

DOI: 10.1016/j.jfineco.2017.08.005

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