Face-to-face Social Interactions and Local Informational Advantage
Abstract
This paper examines the causal role of face-to-face (F2F) interactions in providing informational advantages to mutual fund managers. Using COVID-19 lockdowns as an exogenous shock, I show that fund managers' performance on local stocks declined relative to distant stocks when in-person meetings were curtailed, driven by impaired investment timing rather than changes in fundamentals. I investigate two distinct benefits of F2F interaction facilitated by interpersonal cues: trust-building, which enhances the transmission of soft information, and impression management, which facilitates managers' tendency to share favorable information. The results cannot be fully explained by changes in internal information flow or the use of public information, and are more pronounced for stocks in less transparent information environments and in regions with stronger social traits.