Geography, Informal Information Flows and Mutual Fund Portfolios

This paper explores how informal information channels impact mutual fund performance. We measure the strengths of two location-based information channels: 1) information transfers among fund managers (fund-fund links) and 2) transfers between managers and the companies in which they invest (fund-company links). We find that each channel increases investment performance in the absence of the other, but decreases it when acting in combination. Stock selection associated with the presence of one channel, but the absence of the other, earns positive future returns. Our results indicate that the economic benefits of informal information channels depend critically on the nature of their interactions.