is an article written by J.Horton and G.Serafeim in December-2009. Authors study relationship of social-network connectedness and whether it provides any informational-advantage to security analysists in the form of performance-forecasting and bargaining power.
The article begins with discussion of 3-advantages of information arbitrage-opportunities. These advantages are: information diversity, information early access, information control (Horton & Serafeim, 2009, pp 6-8). Authors introduce two hypothesises that used to build-up on the argument of social-network importance and further tested. In consequent results-sections, they ran regressions and collected estimates which have explanatory power. Also, authors stress about implication of innate-ability and network-position are independent, and innate-ability cannot influence forecast-error. Results support the theory of information advantage as of “word-of-mouth effects” (Horton & Serafeim, 2009, p 17) due to better network-position. Hence, better-connected individual able to make more precise, timely forecasts, which is consistent with their first hypothesis.
Authors then state that information received via strong social-networking influences on performance, thus, lower probability of losing job in favour of their second-hypothesis.Finally, they study factors that determine future network-position by controlling for accuracy of forecast performance by introducing special-variables. They received contradict results about the accuracy of analyst which carefully interpreted as: “Apparently, it would appear optimistic analysts rewarded with the ability to build a stronger network which then enables them to make better forecasts.” (Horton & Serafeim, 2009, p 23). It does not matter, whether you are accurate or experienced specialist, the informational advantage of network position exists outside of analyst’s innate ability or experience. Therefore, “quantity is better than quality in social networking” is precisely a quote that describes the relationship between performance and social capital that analyst builds-up.
Consequent question for further discussion is whether this informational advantage is sufficient enough for a capital analyst or not, against competitors who have higher innate ability?
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