Lauren Cohen of Yale University, Andrea Frazzini of the University of Chicago, and Christopher Malloy of the London Business School have made available a study indicating a correlation between mutual fund returns and the relationship between the fund manager and the executives of the companies in which the fund managers invest. The study indicates that funds do better when fund managers invest in companies operated by old college and graduate school classmates.
Professor Dale Oesterle of Ohio State University’s Moritz College of Law blogs here that this study could indicate these mutual fund results are due to insider trading. Another explanation is that fund managers simply have better information regarding whether old acquaintances know how to run a business. If insider trading is the reason, this study could lead to scandal just as similar studies regarding correlations in stock trading led to the option backdating scandal.
