In today’s financial markets, some information still travels face-to-face

Investors today have more information at their fingertips than ever before. Corporate filings are available electronically, analyst reports and news travel quickly, and artificial intelligence tools can process large amounts of financial data.

Yet more information does not always lead to better investment decisions. The same earnings announcement may look like a temporary setback to one investor and a warning sign about long-term competitiveness to another. In financial markets, the value of information depends not only on access, but also on interpretation.

A new study by Robin Lee, assistant professor of finance at the University of Alberta’s School of Business, examines one way investors gain that understanding: meeting people face-to-face.

Lee’s paper, “Face-to-face Social Interactions and Local Informational Advantage”, published in the Journal of Financial Economics, examines why investors may perform better when investing in firms located near them. Researchers have documented this local advantage, but its source has been difficult to pin down. Local investors may know more about regional news, economic conditions or industry networks. They may also benefit from direct interaction with corporate managers and other market participants.

“Geographic proximity can matter for many reasons,” says Lee. “I wanted to understand whether face-to-face interaction itself plays a distinct role, even in today’s technologically advanced world.”

The COVID-19 pandemic provided a useful setting to study this question because lockdowns and work-from-home arrangements made face-to-face meetings harder, while investors and firms remained geographically close and digital communication became more common. This allowed Lee to distinguish the role of direct interaction from that of physical proximity.

Using data on U.S. mutual fund managers, the paper found that when in-person interaction was curtailed, the relative performance of fund managers’ local investments declined. The decline was most evident in stock selection: managers became less able to identify local stocks that later performed well. This effect was also stronger for firms with less transparent information environments. Importantly, the effect was not driven solely by weakened firm fundamentals during lockdowns.

The findings suggest that face-to-face communication is not simply about collecting more information. It helps investors interpret cues about firms, managers, and local conditions, especially when that information is difficult to quantify or fully capture through standard disclosures, written reports, or online communication.

“Soft information is often unstructured and requires interpretation,” says Lee. “Investors need to evaluate not only what managers say, but how they explain it and how they respond to questions.”

The paper points to two reasons in-person interaction may matter. The first is that direct meetings can foster trust and provide context. Soft information is often subjective, difficult to verify and dependent on how it is conveyed, making trust important for effective communication.

For example, investors’ interpretation of whether weak sales reflect a temporary setback or a deeper strategic problem may depend on how managers explain it. Through direct interaction, investors can observe a manager’s tone, responsiveness, and confidence. These cues can help them judge whether the explanation is credible, especially when information asymmetry is high.

The second is impression management, or the way managers frame information. Corporate executives often have incentives to reduce uncertainty and highlight the positive aspects of their firms. Interpersonal cues can help investors assess how managers frame the information.

For example, when investors worry about falling margins or rising costs, managers may frame them as temporary adjustments or costs tied to future growth. The paper suggests that face-to-face interaction may matter more when managers have stronger incentives to present the firm’s prospects positively.

This does not mean in person communication is always better. Electronic disclosure, online meetings, and AI tools can lower costs, broaden access and make corporate information easier to process. But the study shows that these tools did not fully replace what in-person interaction can provide.

“Digital technology is changing how information moves through financial markets,” says Lee. “Investors can access and process more information faster than ever. But access is not the same as understanding. In this setting, face-to-face communication can still help investors place information in context and relate it to a firm’s fundamentals.”

Key takeaways

• Face-to-face interaction can create informational advantages: In-person interaction with corporate executives and other market participants can help money managers gain insights about nearby firms. Geographic proximity makes these interactions easier to form and maintain, giving investors an advantage when investing locally.
• Digital tools do not fully replace in-person contact: Video calls, email, and AI tools can make corporate information easier to access and process, but they may not fully capture the context and interpersonal cues that help investors interpret soft information.
• In-person meetings help build trust around soft information: Because soft information is often subjective and difficult to verify, nonverbal and interpersonal cues can help investors judge whether an executive’s explanation is credible.
• Face-to-face contact helps investors assess how information is framed: Corporate leaders often have incentives to present their firms positively, and direct interaction can help investors place those explanations in context and relate them to the firm’s fundamentals.
  
  Read Lee’s full article in the Journal of Financial Economics at DOI:10.1016/j.jfineco.2026.104280

U of A research. Real-World impact.

How do we create jobs that fuel prosperity? Through fair labour practices, economic policy and entrepreneurship, the U of A is striving to achieve the UN's goal of decent work and growth.

See How We're Building Better