Business Connections and Informed Trading of Mutual Fund Managers

55 Pages Posted: 4 Dec 2009 Last revised: 30 Aug 2013

See all articles by Yue Tang

Yue Tang

University of Florida - Department of Finance, Insurance and Real Estate

Date Written: August 2013

Abstract

This paper explores the hypothesis that investors gain information advantages through business connections made during prior employment. Mutual fund managers who previously worked as sell-side analysts put significantly more weight on the stocks they previously covered, and holdings of those stocks outperform their other holdings by 18% annually. These abnormal returns are concentrated around earnings announcements. However, the superior performance of covered stocks decreases significantly after the implementation of Regulation-FD or after executive changes at the covered companies. The results indicate that fund managers may have access to inside information through the business connections they made while working as analysts.

Keywords: Business connections, Mutual funds, Financial analysts

JEL Classification: G11, G14

Suggested Citation

Tang, Yue, Business Connections and Informed Trading of Mutual Fund Managers (August 2013). Available at SSRN: https://ssrn.com/abstract=1517476 or http://dx.doi.org/10.2139/ssrn.1517476

Yue Tang (Contact Author)

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611
United States
352-273-4447 (Phone)

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