The US stock market has hovered around a record high of late. Share prices were advancing steadily until British voters decided in a referendum on June 23 to leave the European Union. Although polls showed a close race throughout the campaign, the result came as a shock — but a shock that wore off fast as whilst stocks fell dramatically, they recovered nearly all of Brexit losses in the final days of the month.
How information moves in the market is transparent but how that information moves through the market to eventually affect stock prices is less understood. And even more opaque is the impact that people have on this process.
Harvard Business Review published an interesting piece which you can read here. After analyzing more than 15 years’ worth of investment data, the authors of the piece found one way that information gets around and improves investing performance is through alumni networks.
Alumni networks, the author’s discovered, turned out to be an especially effective kind of social network in part because people often self-select into undergraduate and graduate programs that have social groups with interests closely aligned to their own, which generates both a higher level of interaction and longer-lived relationships. How do relationships formed in education affect corporate alumni networks and stock prices?
They found that the depth and persistence of college networks means that fund managers and analysts amass—incidentally and on purpose—detailed information about fellow graduates. They understand what it means if a person belonged to a certain club or participated in a specific study program. As they grow in their professional roles subsequently, they have common acquaintances. They may know people who hired a person previously. They use and share this information and it helps them better assess executives’ potential as leaders and business owners.
A fascinating twist on how knowing your alumni and the power of harnessing them can materially impact a corporate’s financial performance.