Information Networks: Implications for Mutual Fund Trading Behavior and Stock Returns (Pareek A.)

Information Asymmetry and Transparency

Abstract This paper examines the effect of information networks on the trading behavior of mutual funds and on stock returns. An information or stock ownership linkage between two mutual funds is defined by large positions in the same stock. Mutual funds trade together with other funds in their information network after controlling for the overall trading behavior of the mutual fund sector. The effect is robust and cannot be explained by style investing or geographic location. The paper also examines the effect of the structure of information networks on stock returns and stock volatility. Using network density as a measure for the speed of information diffusion in a network of investors, I find that stocks with a lower network density demonstrate stronger return momentum at medium horizons and stronger return reversal in the long run. The evidence is consistent with the gradual information diffusion model of Hong and Stein (1999). Finally, I provide empirical evidence in support of recent theoretical models that study the asset pricing implications of social networks. I show that centralized information networks lead to a higher volatility of individual stocks in the cross-section and also explain the variation in average stock idiosyncratic volatility over time.
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Libref/ He J. (2009) “Information Production, Retail Investors, and Delegated Portfolio Management”, AFA 2010 Atlanta Meetings Paper, pp. 1-57
© Программирование — Александр Красильников, 2008
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