Financial Markets and Portfolio Management

, Volume 28, Issue 3, pp 233–262

Reciprocal social influence on investment decisions: behavioral evidence from a group of mutual fund managers

Article

DOI: 10.1007/s11408-014-0232-2

Cite this article as:
König, F. Financ Mark Portf Manag (2014) 28: 233. doi:10.1007/s11408-014-0232-2
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Abstract

In this paper, I analyze reciprocal social influence on investment decisions in an international group of roughly 2,000 mutual fund managers who invested in companies in the DAX30. Using a robust estimation procedure, I provide empirical evidence that the average fund manager puts 0.69 % more portfolio weight on a particular stock if his or her peers, on average, assign a weight to the corresponding position that is 1 % higher compared to other stocks in the portfolio. The dynamics of this influence on choice of portfolio weights suggest that fund managers adjust their behavior based on the prevailing market situation and are more strongly influenced by others in times of an economic downturn. Analyzing the working locations of the fund managers, I conclude that more than 90 % of the magnitude of influence stems from social learning. Although this form of influence varies a great deal over time, the magnitude of influence resulting from the exchange of opinions is more or less constant.

Keywords

Mutual fund managersSocial interactionHerding Word-of-mouth

JEL Classification

A14D83G11G23

Copyright information

© Swiss Society for Financial Market Research 2014

Authors and Affiliations

  1. 1.Faculty of Business Administration and EconomicsGoethe-UniversityFrankfurt/MainGermany