Hostname: page-component-78c5997874-m6dg7 Total loading time: 0 Render date: 2024-11-18T03:30:19.022Z Has data issue: false hasContentIssue false
  • English
  • Français

TAXI! Do Mutual Funds Pursue and Exploit Information on Local Companies?

Published online by Cambridge University Press:  05 July 2023

David C. Cicero ,
Andy Puckett Open the ORCID record for Andy Puckett [Opens in a new window] ,
Albert Y. Wang Open the ORCID record for Albert Y. Wang [Opens in a new window]  and
Shen Zhang Open the ORCID record for Shen Zhang [Opens in a new window]
David C. Cicero
Affiliation:
Auburn University Harbert College of Business davidcicero@auburn.edu
Andy Puckett*
Affiliation:
University of Tennessee Haslam College of Business
Albert Y. Wang
Affiliation:
Auburn University Harbert College of Business albertwang@auburn.edu
Shen Zhang
Affiliation:
Fordham University Gabelli School of Business and Troy University Sorrell College of Business szhang380@fordham.edu
*
pucketta@utk.edu (corresponding author)
Rights & Permissions [Opens in a new window]

Abstract

Core share and HTML view are not available for this content. However, as you have access to this content, a full PDF is available via the ‘Save PDF’ action button.

We use New York City (NYC) taxi data to identify trips between mutual fund offices and local firm headquarters. NYC funds overweight the stocks of local firms they visit via taxi, and firm visits are associated with superior investment performance. Firm visits are elevated prior to earnings announcements, and mutual fund trades that are associated with firm taxi visits predict earnings surprises. The results are generally stronger when fund and firm executives share educational connections. Additional tests support the conclusion that funds’ local bias and investment performance are driven by portfolio managers’ efforts and ability to actively gather material information.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , First View , pp. 1 - 36
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2023. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

We are grateful to discussants Lezgin Ay, Huaizhi Chen, Simon Glossner, Mathias Kruttli, Tim Park, Sophie Shive, and Qifei Zhu, as well as Jennifer Conrad (the editor), Jesse Ellis (the referee), Paul Koch, Tingting Liu, and seminar participants at the Kent State University, Iowa State University, University of Georgia, University of Nebraska, Villanova University, University of Waterloo, University of Louisville, University of Alabama, Baruch College, 2020 European Finance Association Conference, 2020 Financial Management Association Conference, 2021 Western Finance Association Conference, 2021 China International Conference in Finance, 2021 Midwest Finance Association Conference, 2021 Eastern Finance Association Conference, and 2021 Southern Finance Association Conference for their comments.

References

Abis, S., and Lines, A.. “Do Mutual Funds Keep Their Promises?” Working Paper, Columbia University (2022).Google Scholar
Agarwal, V.; Tang, Y.; and Yang, B.. “Do Mutual Funds Have Market Timing Ability? New Evidence from Daily Trades.” Working Paper, Georgia State University and University of Florida (2012).CrossRefGoogle Scholar
Anand, A.; Irvine, P.; Puckett, A.; and Venkataraman, K.. “Performance of Institutional Trading Desks: An Analysis of Persistence in Trading Costs.” Review of Financial Studies, 25 (2012), 557–598.Google Scholar
Baik, B.; Kang, J. K.; and Kim, J. M.. “Local Institutional Investors, Information Asymmetries, and Equity Returns.” Journal of Financial Economics, 97 (2010), 81–106.CrossRefGoogle Scholar
Baker, M.; Litov, L.; Wachter, J. A.; and Wurgler, J.. “Can Mutual Fund Managers Pick Stocks? Evidence from Their Trades Prior to Earnings Announcements.” Journal of Financial and Quantitative Analysis, 45 (2010), 1111–1131.CrossRefGoogle Scholar
Bernile, G.; Kumar, A.; and Sulaeman, J.. “Home Away from Home: Geography of Information and Local Investors.” Review of Financial Studies, 28 (2015), 2009–2049.CrossRefGoogle Scholar
Bernile, G.; Kumar, A.; Sulaeman, J.; and Wang, Q.. “Has Local Informational Advantage Disappeared?” Review of Financial Economics, 37 (2019), 38–60.CrossRefGoogle Scholar
Bhattacharya, U., and Daouk, H.. “The World Price of Insider Trading.” Journal of Finance, 57 (2002), 75–108.CrossRefGoogle Scholar
Bradley, D.; Finer, D. A.; Gustafson, M.; and Williams, J.. “When Bankers Go to Hail: Insights into Fed-Bank Interactions from Taxi Data.” Management Science, forthcoming (2023).Google Scholar
Bradley, D.; Jame, R.; and Williams, J.. “Non-Deal Roadshows, Informed Trading, and Analyst Conflicts of Interest.” Journal of Finance, 77 (2021), 265–315.CrossRefGoogle Scholar
Bushee, B. J.; Jung, M. J.; and Miller, G. S.. “Do Investors Benefit from Selective Access to Management?” Journal of Financial Reporting, 2 (2017), 31–61.CrossRefGoogle Scholar
Bushee, B. J.; Gerakos, J.; and Lee, L. F.. “Corporate Jets and Private Meetings with Investors.” Journal of Accounting and Economics, 65 (2018), 358–379.CrossRefGoogle Scholar
Busse, J. A.; Chordia, T.; Jiang, L.; and Tang, Y.. “Transaction Costs, Portfolio Characteristics, and Mutual Fund Performance.” Management Science, 67 (2021), 1227–1248.CrossRefGoogle Scholar
Chen, H.; Qu, Y.; Shen, T.; Wang, Q.; and Xu, D. X.. “The Geography of Information Acquisition.” Journal of Financial and Quantitative Analysis, 57 (2022), 2251–2285.CrossRefGoogle Scholar
Chen, J.; Hong, H.; Jiang, W.; and Kubik, J. D.. “Outsourcing Mutual Fund Management: Firm Boundaries, Incentives, and Performance.” Journal of Finance, 68 (2013), 523–558.CrossRefGoogle Scholar
Choy, S., and Hope, O.-K.. “Private Communication Between Managers and Financial Analysts: Evidence from Taxi Ride Patterns in New York City.” Working Paper, University of Toronto (2021).CrossRefGoogle Scholar
Cohen, L.; Frazzini, A.; and Malloy, C.. “The Small World of Investing: Board Connections and Mutual Fund Returns.” Journal of Political Economy, 116 (2008), 951–979.CrossRefGoogle Scholar
Cohen, L.; Lou, D.; and Malloy, C.. “Cloaked Trading.” Journal of Investment Consulting, 17 (2016), 69–80.Google Scholar
Coval, J. D., and Moskowitz, T. J.. “Home Bias at Home: Local Equity Preference in Domestic Portfolios.” Journal of Finance, 54 (1999), 2045–2073.Google Scholar
Coval, J. D., and Moskowitz, T. J.. “The Geography of Investment: Informed Trading and Asset Prices.” Journal of Political Economy, 109 (2001), 811–841.CrossRefGoogle Scholar
Cremers, K. J. M., and Petajisto, A.. “How Active Is Your Fund Manager? A New Measure that Predicts Performance.” Review of Financial Studies, 22 (2009), 3329–3365.CrossRefGoogle Scholar
Daniel, K.; Grinblatt, M.; Titman, S.; and Wermers, R.. “Measuring Mutual Fund Performance with Characteristic-Based Benchmarks.” Journal of Finance, 52 (1997), 1035–1058.Google Scholar
Ellis, J.; Madureira, L.; and Underwood, S.. “The Causal Effects of Proximity on Investment: Evidence from Flight Introductions.” Journal of Financial and Quantitative Analysis, 55 (2020), 1978–2004.CrossRefGoogle Scholar
Ellis, J. A.; Gerken, W. C.; and Jame, R.. “On the Road to Better Governance: Private Meetings and Mutual Fund Voting.” Working Paper, North Carolina State University and University of Kentucky (2021).Google Scholar
Elton, E. J.; Gruber, M. J.; Blake, C. R.; Krasny, Y.; and Ozelge, S. O.. “The Effect of Holdings Data Frequency on Conclusions About Mutual Fund Behavior.” Journal of Banking and Finance, 34 (2010), 912–922.CrossRefGoogle Scholar
Evans, R. B.; Prado, M. P.; and Zambrana, R.. “Competition and Cooperation in Mutual Fund Families.” Journal of Financial Economics, 136 (2020), 168–188.CrossRefGoogle Scholar
Fishman, M. J., and Hagerty, K. M.. “Insider Trading and the Efficiency of Stock Prices.” RAND Journal of Economics, 23 (1992), 106–122.CrossRefGoogle Scholar
Green, T. C.; Jame, R.; Markov, S.; and Subasi, M.. “Broker-Hosted Investor Conferences.” Journal of Accounting and Economics, 58 (2014a), 142–166.CrossRefGoogle Scholar
Green, T. C.; Jame, R.; Markov, S.; and Subasi, M.. “Access to Management and the Informativeness of Analyst Research.” Journal of Financial Economics, 114 (2014b), 239–255.CrossRefGoogle Scholar
Hu, G.; Jo, K. M.; Wang, Y. A.; and Xie, J.. “Institutional Trading and Abel Noser Data.” Journal of Corporate Finance, 52 (2018), 143–167.CrossRefGoogle Scholar
Irvine, P.; Lipson, M.; and Puckett, A.. “Tipping.” Review of Financial Studies, 20 (2007), 741–768.CrossRefGoogle Scholar
Ivashina, V., and Sun, Z.. “Institutional Stock Trading on Loan Market Information.” Journal of Financial Economics, 100 (2011), 284–303.CrossRefGoogle Scholar
Ivkovic, Z., and Weisbenner, S.. “Local Does as Local Is: Information Content of the Geography of Individual Investors’ Common Stock Investments.” Journal of Finance, 60 (2005), 267–306.CrossRefGoogle Scholar
Kang, J. K.; Stice-Lawrence, L.; and Wong, Y. T. F.. “The Firm Next Door: Using Satellite Images to Study Local Information Advantage.” Journal of Accounting Research, 59 (2021), 713–750.CrossRefGoogle Scholar
Khanna, N.; Slezak, S. L.; and Bradley, M.. “Insider Trading, Outside Search, and Resource Allocation: Why Firms and Society May Disagree on Insider Trading Restrictions.” Review of Financial Studies, 7 (1994), 575–608.CrossRefGoogle Scholar
Kirk, M. P., and Markov, S.. “Come on Over: Analyst/Investor Days as a Disclosure Medium.” Accounting Review, 91 (2016), 1725–1750.CrossRefGoogle Scholar
Li, S.; Ruan, H.; Titman, S.; and Xiang, H.. “ESG Spillovers.” NBER Working Paper No. 31248 (2022).CrossRefGoogle Scholar
Pool, V. K.; Stoffman, N.; and Yonker, S. E.. “No Place Like Home: Familiarity in Mutual Fund Manager Portfolio Choice.” Review of Financial Studies, 25 (2012), 2563–2599.CrossRefGoogle Scholar
Pool, V. K.; Stoffman, N.; and Yonker, S. E.. “The People in Your Neighborhood: Social Interactions and Mutual Fund Portfolios.” Journal of Finance, 70 (2015), 2679–2732.CrossRefGoogle Scholar
Puckett, A., and Yan, X. S.. “The Interim Trading Skills of Institutional Investors.” Journal of Finance, 66 (2011), 601–633.CrossRefGoogle Scholar
Schneider, T. W. “Analyzing 1.1 Billion NYC Taxi and Uber Trips, with a Vengeance.” Available at http://toddwschneider.com/posts/analyzing-1-1-billion-nyc-taxi-and-uber-trips-with-a-vengeance/ (2018) (accessed May 21, 2019).Google Scholar
Seasholes, M. S., and Zhu, N.. “Individual Investors and Local Bias.” Journal of Finance, 65 (2010), 1987–2010.CrossRefGoogle Scholar
Solomon, D., and Soltes, E.. “What Are We Meeting For? The Consequences of Private Meetings with Investors.” Journal of Law and Economics, 58 (2015), 325–355.CrossRefGoogle Scholar
Reuters, Thomson. 2009 IR Best Practices: Executive Summary. New York, NY: Thomson Reuters (2009).Google Scholar
Yan, X. S., and Zhang, Z.. “Institutional Investors and Equity Returns: Are Short-Term Institutions Better Informed?” Review of Financial Studies, 22 (2009), 893–924.CrossRefGoogle Scholar