Do Fund Managers Identify and Share Profitable Ideas?1 by Wesley R. Gray2 and Andrew E. Kern3 ABSTRACT We study data from an organization where fundamentals-based fund managers privately share investment ideas. Evidence suggests the professional investors in our sample have stock-picking skills. A strategy of going long (short) buy (sell) recommendations earns monthly calendar-time abnormal returns of 1.38% (- 2.91%) over the January 1, 2000 to December 31, 2008 sample period. Interestingly, these skilled investors share their profitable ideas. We test predictions from private information sharing theories and determine that our sample investors share ideas to receive constructive feedback, gain access to a broader set of actionable ideas, and to attract additional arbitrager capital to their asset market. JEL Classification: G10, G11, G14 Key words: Networks, Hedge Funds, and Market Efficiency. 1We would like to thank Daniel Bergstresser, Dave Carlson, Hui Chen, John Cochrane, Lauren Cohen, Cliff Gray, Eugene Fama, Ron Howren, Carl Luft, Stavros Panageas, Shastri Sandy, Gil Sadka, Amir Sufi, Pietro Veronesi, and Rob Vishny. We would also like to thank seminar participants at the University of Chicago Booth School of Business, Texas A&M, Southern Methodist Univesity, Drexel, Ohio State, University of Virginia, University of Washington, and Boston College. 2 Drexel University, Lebow College of Business, Philadelphia, PA 19104, Phone: 773-230-4727, Fax: 888-517- 5529, E-mail:
[email protected]. 3 Empirical Finance, LLC, 17304 Preston Rd., Suite 1230, Dallas, TX 75252, Phone: 573-356-8993, Fax: 888-517- 5529, E-mail:
[email protected]. Do Fund Managers Identify and Share Profitable Ideas? ABSTRACT We study data from an organization in which fund managers privately share investment ideas.