Events

Dr. Yonghoon Lee
Assistant Professor
Department of Management
The Hong Kong University of Science and Technology

ABSTRACT

Informal networks can help fund managers access information embedded in the networks, but they can also expose managers to the hazard of social herding. Drawing on hedge funds industry, we theorize that the type of information managers use provides a condition under which the value of information access outweighs the hazard of social herding, and vice versa. We test our hypotheses with a triple difference design, leveraging 1) the collapse of Lehman Brothers that caused managers to exchange information through informal networks and 2) the difference between long–short funds relying on soft information, and relative value funds relying on hard information. We find that being connected to informal networks has a net-positive effect on the performance of long–short funds but has a net-negative effect for relative value funds.