Is Hard and Soft Information Substitutable?

UNIVERSITY OF TECHNOLOGY SYDNEY
Finance Department
Research Seminars in Finance

Jennie Bai

Topic: Is Hard and Soft Information Substitutable? Evidence from Lockdown

Speaker: Jennie Bai, Georgetown University

Abstract: We study information substitutability in the  financial market through a quasi-natural experiment: the pandemic-triggered lockdown that has hampered people's physical interactions hence the ability to collect, process, and transmit soft information. Exploiting the cross-sectional and time-series variations of lockdown, we investigate how the difficulty to use soft information has prompted a switch to hard information and its implication on fund investment and performance. We show that lockdown reduces fund investment in proximate stocks and generates a portfolio rebalancing toward distant stocks. The rebalancing negatively impacts fund performance by reducing fund raw (excess) return of an additional 0.76% (0.29%) per month during lockdown, suggesting that soft and hard information is not easily substitutable. Lastly, we show that soft information originates mainly from physical human interactions, primarily in cafes, restaurants, bars, and  fitness centers; and the virtual world based on Zoom/Skype/Team fails to substitute physical interactions fully, thus cannot provide sufficient soft information.

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Moderator: Jianxin Wang, University of Technology Sydney

Date: Wednesday, 10th November 2021
Time: 9-10 am (Australian Eastern Daylight Time)
Venue: This is on online Zoom webinar.

Seminar protocols:

  • The webinar will run for 45 minutes, followed by a 15 minute Q&A session.
  • There will be a moderator for each seminar event, who will facilitate communication and resolve any technical issues.
  • Participants can use the chat facility or raise their had to ask questions during the presentation. The moderator will then alert the speaker at the appropriate time and either ask the questions raised or unmute the participant so they can ask the question directly to the presenter.

Co-ordinator: Harry Scheule

Enquiries: Duncan Ford

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