Abstract
We develop a strategy to infer the latent social networks of investors using only data on their stock holdings. We embed a tractable statistical model of random networks into a portfolio choice framework to map stock holdings to investors' linkages. The key assumption is that the fixed cost of owning a stock falls with the size of an investor's network in the city where the firm is headquartered. Using mutual fund manager data, we find that the distribution of managerial linkages in any given city is too overdispersed or fat-tailed to be generated by the Erdos and Renyi (1959) model of i.i.d. connections. Managers at the tail of this distribution, and hence with non-i.i.d. connections to a city, are shown to have more university alumni connections in that city and to outperform other mutual funds by 1.6% per annum.
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