Communication and the Diffusion of Market Information
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| Title | Communication and the Diffusion of Market Information
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| Author | Kong Dongmin,Chen Xiaolin and Liu Shasha |
| Organization | Huazhong University of Science and Technology; Jiujiang University;Peking University |
| Email | kongdm@hust.edu.cn；chen072002@163.com；sarahliu@pku.edu.cn |
| Key Words | Communication; Mutual Funds; Information Advantages; Performance |
| Abstract | Using a unique dataset on communication between mutual funds and listed firms in China’s stock market, we investigate whether active institutional investors can obtain private information or benefit from their communication with such listed firms. We provide new evidences to social network and the theory of diffusion of market information. We find that: mutual fund managers prefer to visit firms in their holding and with large capitalization, high book-to-market value, good performance, high investor attention, high earning quality, and proximity of location; large and active fund families are more likely to visit listed firms; communication affects subsequent trades of mutual funds; trades of mutual funds which rely on communications significantly predict unexpected earnings and firm performances. Furthermore, our findings are more significant on firms with a low investor attention. Collectively, our results indicate that institutional investors can gain information advantage and make profitable decisions by communicating with firms, which offer clear and significant policy implications. |
| Serial Number | WP557 |
| Time | 2013-11-20 |
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