NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

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

NBER Working Paper No. 9711
Issued in May 2003
NBER Program(s):   AP   CF

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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Document Object Identifier (DOI): 10.3386/w9711

Published: Hong, Harrison, Jeffrey D. Kubik and Jeremy C. Stein. “Thy Neighbor’s Portfolio: Word-of-Mouth Effects in the Holdings and Trades of Money Managers." Journal of Finance 60 (2005): 2801-2824.

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