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Why Do Fund Managers Identify and Share Profitable Ideas?

Published online by Cambridge University Press:  04 September 2017

Steven S. Crawford ,
Wesley R. Gray  and
Andrew E. Kern
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Abstract

We study data from an organization in which fund managers privately share and discuss detailed investment recommendations. Buy recommendations generate positive abnormal returns, and sell recommendations result in negative abnormal returns. In the context of these results, we explore an important economic question: Why do skilled investors share profitable ideas with others? Evidence suggests that the managers in our sample share to receive feedback on their ideas and to attract additional arbitrageur capital to the securities they recommend in order to correct mispricings.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 52 , Issue 5 , October 2017 , pp. 1903 - 1926
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2017 

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Footnotes

1

We thank Daniel Bergstresser, Dave Carlson, Hui Chen, John Cochrane, Lauren Cohen, Eugene Fama, Cliff Gray, Ron Howren, Carl Luft, Stavros Panageas, Gil Sadka, Shastri Sandy, Amir Sufi, Pietro Veronesi, and Rob Vishny. We also thank seminar participants at the University of Chicago, Texas A&M University, Southern Methodist University, Drexel University, Ohio State University, the University of Virginia, the University of Washington, and Boston College. We also thank Stephen Brown (the editor) and Paolo Pasquariello (the referee) for helpful suggestions.

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