Banks and development: Jewish communities in the Italian Renaissance and current economic performance
| Authors | Pascali |
| Journal | Review of Economics and Statistics |
| Year | 2016 |
| Type | Published Paper |
| Abstract | Are differences in local banking development long lasting? Do they affect economic performance? I answer these questions by relying on a historical development that occurred in Italian cities during the Renaissance. A change in Catholic doctrine led to the development of modern banks in cities hosting Jewish communities. Using Jewish demography in 1500 as an instrument, I provide evidence of extraordinary persistence in the level of banking development across Italian cities and substantial effects of local banks on per capita income. Additional firm-level analyses suggest that banks exert large effects on aggregate productivity by reallocating resources toward more efficient firms. |
| Keywords | Banking development, religion, Jewish, economic productivity, long-lasting differences |
| URL | https://doi.org/10.1162/REST_a_00481 |
| Tags | Archival Empirical | Investment Decisions (Institutional) |
Suspense and surprise
| Authors | Ely, Frankel, Kamenica |
| Journal | Journal of Political Economy |
| Year | 2015 |
| Type | Published Paper |
| Abstract | We model demand for noninstrumental information, drawing on the idea that people derive entertainment utility from suspense and surprise. A period has more suspense if the variance of the next period's beliefs is greater. A period has more surprise if the current belief is further from the last period's belief. Under these definitions, we analyze the optimal way to reveal information over time so as to maximize expected suspense or surprise experienced by a Bayesian audience. We apply our results to the design of mystery novels, political primaries, casinos, game shows, auctions, and sports. |
| URL | https://www.journals.uchicago.edu/doi/full/10.1086/677350 |
| Tags | Consumer Decisions | Financing- and Investment Decisions (Individual) | Investment Decisions (Institutional) | Manager / Firm Behavior | Social Transmission Biases | Theory |
Success in global venture capital investing: Do institutional and cultural differences matter?
| Authors | Nahata, Hazarika, Tandon |
| Journal | Journal of Financial and Quantitative Analysis |
| Year | 2015 |
| Type | Published Paper |
| Abstract | We analyze the impact of institutional and cultural differences on success in global venture capital (VC) investing. In both developed and emerging economies, superior legal rights (and enforcement) and better developed stock markets significantly enhance VC performance. Remarkably, cultural distance between countries of the portfolio company and its lead investor positively affects VC success. Further analysis reveals that cultural differences create incentives for rigorous ex ante screening, improving VC performance. Finally, local VC participation enhances success and mitigates foreign VCs' "liability of foreignness," albeit only in developed economies. Our findings follow from analyzing VC investments in nearly 10,000 companies across 30 countries. |
| Keywords | VC investing, cultural differences, institutional differences, stock market development, international evidence |
| URL | https://doi.org/10.1017/S0022109014000568 |
| Tags | Archival Empirical | Investment Decisions (Institutional) |
The people in your neighborhood: Social interactions and mutual fund portfolios
| Authors | Pool, Stoffman, Yonker |
| Journal | Journal of Finance |
| Year | 2015 |
| Type | Published Paper |
| Abstract | We find that socially connected fund managers have more similar holdings and trades. The overlap of funds whose managers reside in the same neighborhood is considerably higher than that of funds whose managers live in the same city but in different neighborhoods. These effects are larger when managers share a similar ethnic background, and are not explained by preferences. Valuable information is transmitted through these peer networks: a long-short strategy composed of stocks purchased minus sold by neighboring managers delivers positive risk-adjusted returns. Unlike prior empirical work, our tests disentangle the effects of social interactions from community effects. |
| URL | https://doi.org/10.1111/jofi.12208 |
| Tags | Archival Empirical | Investment Decisions (Institutional) |
Deviations from norms and informed trading
| Authors | Kumar, Page |
| Journal | Journal of Financial and Quantitative Analysis |
| Year | 2014 |
| Type | Published Paper |
| Abstract | Investment managers are subject to personal and institutional norms that can constrain their investment choices. We conjecture that norm-constrained investors deviate from such norms only when they have compelling information, and we predict that deviating investments earn relatively high abnormal returns ex post. Consistent with our conjecture, we find that institutions averse to holding lottery-like stocks or sin stocks earn relatively high abnormal returns when they choose to hold such stocks. We find similar but weaker results for deviations from broader style categories. Overall, our evidence indicates that deviations from established institutional or social norms signal informed investing. |
| Keywords | Investment manager behavior, social norms, informed investing, portfolio performance |
| URL | https://doi.org/10.1017/S0022109014000519 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Investment Decisions (Institutional) | Manager / Firm Behavior |
Friends with money
| Authors | Engelberg, Gao, Parsons |
| Journal | Journal of Financial Economics |
| Year | 2012 |
| Type | Published Paper |
| Abstract | When banks and firms are connected through interpersonal linkages - such as their respective management having attended college or previously worked together - interest rates are markedly reduced, comparable with single shifts in credit ratings. These rate concessions do not appear to reflect sweetheart deals. Subsequent firm performance, such as future credit ratings or stock returns, improves following a connected deal, suggesting that social networks lead to either better information flow or better monitoring. |
| Keywords | Asymmetric information, bank lending, cost of debt, social connections, lending outcomes |
| URL | https://doi.org/10.1016/j.jfineco.2011.08.003 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Investment Decisions (Institutional) | Manager / Firm Behavior | Social Network Structure |
Individualism and momentum around the world
| Authors | Chui, Titman, Wei |
| Journal | Journal of Finance |
| Year | 2010 |
| Type | Published Paper |
| Abstract | This paper examines how cultural differences influence the returns of momentum strategies. Cross-country cultural differences are measured with an individualism index developed by Hofstede (2001), which is related to overconfidence and self-attribution bias. We find that individualism is positively associated with trading volume and volatility, as well as to the magnitude of momentum profits. Momentum profits are also positively related to analyst forecast dispersion, transaction costs, and the familiarity of the market to foreigners, and negatively related to firm size and volatility. However, the addition of these and other variables does not dampen the relation between individualism and momentum profits. |
| Keywords | Cultural differences, momentum strategy, asset pricing, behavioral finance |
| URL | https://onlinelibrary.wiley.com/doi/full/10.1111/j.1540-6261.2009.01532.x |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Financing- and Investment Decisions (Individual) | Investment Decisions (Institutional) |
Mutual fund attributes and investor behavior
| Authors | Bollen |
| Journal | Journal of Financial and Quantitative Analysis |
| Year | 2009 |
| Type | Published Paper |
| Abstract | I study the dynamics of investor cash flows in socially responsible mutual funds. Consistent with anecdotal evidence of loyalty, the monthly volatility of investor cash flows is lower in socially responsible funds than in conventional funds. I find strong evidence that cash flows into socially responsible funds are more sensitive to lagged positive returns than cash flows into conventional funds, and weaker evidence that cash outflows from socially responsible funds are less sensitive to lagged negative returns. These results indicate that investors derive utility from the socially responsible attribute, especially when returns are positive. |
| Keywords | Mutual fund, social responsibility, cash flow, investor behavior, investor utility |
| URL | https://doi.org/10.1017/S0022109000004142 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Financing- and Investment Decisions (Individual) | Investment Decisions (Institutional) |
The small world of investing: Board connections and mutual fund returns
| Authors | Cohen, Frazzini, Malloy |
| Journal | Journal of Political Economy |
| Year | 2008 |
| Type | Published Paper |
| 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 connected firms and perform significantly better on these holdings relative to their nonconnected holdings. A replicating portfolio of connected stocks outperforms nonconnected stocks by up to 7.8 percent per year. Returns are concentrated around corporate news announcements, consistent with portfolio managers gaining an informational advantage through the education networks. Our results suggest that social networks may be important mechanisms for information flow into asset prices. |
| URL | https://doi.org/10.1086/592415 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Investment Decisions (Institutional) |
Thy neighbor's portfolio: word-of-mouth effects in the holdings and trades of money managers
| Authors | Hong, Kubik, Stein |
| Journal | Journal of Finance |
| Year | 2005 |
| Type | Published Paper |
| Abstract | A mutual fund manager is more likely to buy (or sell) a particular stock in any quarter if other managers in the same city are buying (or selling) that same stock. This pattern shows up even when the fund manager and the stock in question are located far apart, so it is distinct from anything having to do with local preference. The evidence can be interpreted in terms of an epidemic model in which investors spread information about stocks to one another by word of mouth. |
| Keywords | Word-of-mouth effects, Fund managers, Trading behaviors |
| URL | https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1540-6261.2005.00817.x |
| Tags | Archival Empirical | Investment Decisions (Institutional) | Manager / Firm Behavior |
Thy neighbor's portfolio: Word-of-mouth effects in the holdings and trades of money managers
| Authors | Hong, Kubik, Stein |
| Journal | Journal of Finance |
| Year | 2005 |
| Type | Published Paper |
| Abstract | A mutual fund manager is more likely to buy (or sell) a particular stock in any quarter if other managers in the same city are buying (or selling) that same stock. This pattern shows up even when the fund manager and the stock in question are located far apart, so it is distinct from anything having to do with local preference. The evidence can be interpreted in terms of an epidemic model in which investors spread information about stocks to one another by word of mouth. |
| Keywords | Word-of-mouth effects, fund managers, trading behaviors |
| URL | https://doi.org/10.1111/j.1540-6261.2005.00817.x |
| Tags | Archival Empirical | Investment Decisions (Institutional) | Manager / Firm Behavior |
The effect of socially activist investment policies on the financial markets: Evidence from the South African boycott
| Authors | Teoh, Welch, Wazzan |
| Journal | Journal of Business |
| Year | 1999 |
| Type | Published Paper |
| Abstract | We study the most important legislative and shareholder boycott to date, the boycott of South Africa's apartheid regime, and find that corporate involvement with South Africa was so small that the announcement of legislative/shareholder pressure or voluntary corporate divestment from South Africa had little discernible effect either on the valuation of banks and corporations with South African operations or on the South African financial markets. There is weak evidence that institutional shareholdings increased when corporations divested. In sum, despite the publicity of the boycott and the multitude of divesting companies, political pressure had little visible effect on the financial markets. |
| Keywords | Boycott, shareholder pressure, corporate divestment, firm valuation |
| URL | https://doi.org/10.1086/209602 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Investment Decisions (Institutional) | Manager / Firm Behavior |
Survey evidence on diffusion of interest and information among investors
| Authors | Shiller, Pound |
| Journal | Journal of Economic Behavior and Organization |
| Year | 1989 |
| Type | Published Paper |
| Abstract | Questionnaire surveys of institutional and individual investors were undertaken to learn about patterns of communications. It was found that direct interpersonal communications are very important in investor decisions. Questions elicited what fraction of investors were unsystematic and allowed themselves to be influenced by word-of-mouth communications or other salient stimuli. Randomly sampled investors were studied as well as investors in stocks whose price had recently increased dramatically. Contagion or epidemic models of financial markets are proposed in which interest in individual stocks is spread by word of mouth. The survey evidence is interpreted as supporting such models. |
| URL | https://doi.org/10.1016/0167-2681(89)90076-0 |
| Tags | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) | Investment Decisions (Institutional) |