Another Academic Study That Has Caught the Attention of the SEC

A new study by professors Andrea Frazzini of Chicago Christopher Malloy on London and Laurne Cohen of Yale found that mutual fund managers do significantly better when they invest in companies rule by their old college or graduate school classmates.  The study, another in a long line of academic studies that find abnormal correlations in stock trading (remember the study that started the options back dating scandal by finding abnormalities in executive option grants??).  At issue is the inference -- are the results due to legitimate or illegitimate trading.  Some say it is evidence of insider trading; other say it is evidence that fund managers use superior information on their old buddies to pick the good managers.  The study confirms in data what the elite business and law schools have known for decades; you go to these schools for the contacts as much as for the teaching.