Do Good Investment Managers Give Away Great Ideas? It’s Entirely Rational According to New Study
In the competitive, performance-driven world of professional investment management, why would any rational manager share a potentially market-beating investment idea with rival fund managers? And are the ideas they do share any good?
Several months ago, I wrote about SumZero, a relatively new private online community where buy-side managers “share actionable ideas with one another and grow their professional networks.” Cross-sectional data on buy-side stock recommendations is relatively difficult to come by, but a trio of researchers was granted access to SumZero‘s data goldmine: a representative sample of the roughly 4,000 peer-rated investment ideas shared on the site, which they found had earned an average market-adjusted cumulative abnormal return of 4.03% in the 45 days after being posted. Short recommendations, similarly, generated immediate and significant declines in price. Based on these findings, the authors wrote, “the evidence suggests buy-side recommendations have investment value.” So it seems that rational investment managers do share good ideas. Read more.EmailSharePrint