The Small World of Investing: Board Connections and Mutual Fund Returns

Lauren Cohen, Andrea Frazzini () and Christopher Malloy ()

No 13121, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper uses social networks to identify information transfer in security markets. We focus on connections between mutual fund managers and corporate board members via shared education networks. We find that portfolio managers place larger bets on firms they are connected to through their network, and perform significantly better on these holdings relative to their non-connected holdings. A replicating portfolio of connected stocks outperforms a replicating portfolio of non-connected stocks by up to 8.4% per year. Returns are concentrated around corporate news announcements, consistent with mutual fund managers gaining an informational advantage through the education networks. Our results suggest that social networks may be an important mechanism for information flow into asset prices.

JEL-codes: G10 G11 G14 (search for similar items in EconPapers)
Date: 2007-05
New Economics Papers: this item is included in nep-cfn, nep-net, nep-rmg and nep-soc
Note: AP
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (28)

Published as Lauren Cohen & Andrea Frazzini & Christopher Malloy, 2008. "The Small World of Investing: Board Connections and Mutual Fund Returns," Journal of Political Economy, University of Chicago Press, vol. 116(5), pages 951-979, October.

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Journal Article: The Small World of Investing: Board Connections and Mutual Fund Returns (2008)
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