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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

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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.

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