Fluctuations of Social Influence : Evidence from the Behaviour of Mutual Fund Managers During the Economic Crisis 2008/09

In this paper, I analyse the reciprocal social influence on investment decisions within an international group of roughly 2000 mutual fund managers that invested in companies of the DAX30. Using a robust estimation procedure, I provide empirical evidence that in the average a fund manager puts 0.69% more portfolio weight on a particular stock, if other fund managers increase the corresponding position by 1%. The dynamics of this influence on portfolio weights suggest that fund managers adjust their behaviour according to the prevailing market situation and are more strongly influenced by others in times of an economic downturn. Analysing the working locations of the fund managers, I conclude that more than 90% of the magnitude of influence is due to pure observation. While this form of influence varies much in time, the magnitude of influence resulting from the exchange of opinion is more or less constant