Is Human-Interaction-based Information Substitutable?

We study information substitutability using a quasi-natural experiment: the pandemic-triggered lockdown that restricted physical interactions, impacting the collection, processing, and transmission of interaction-based information. By leveraging variations in the lockdown and its impact on proximate investment, we show that funds relying more on physical interactions for information significantly underperformed during the lockdown, compared to others. The loss of their information edge prompted funds to diversify portfolios and mitigate risk. These results suggest the irreplaceability of physical-interaction-based information. Moreover, while virtual platforms offer some buffer, they cannot entirely replace in-person meetings in generating equivalent information.