NEW YORK: A new study circulating through hedge funds and university campuses points to the powerful role that old school ties play in the world of investing.

Mutual fund managers invest more money in companies that are run by people with whom they went to college or graduate school than in companies where they have no such connections. The investments involving school ties, on average, also do significantly better than other investments.

The authors of the study offer two possible explanations - one benign and one decidedly not. Fund managers may simply know more about their old classmates, including which ones are likely to make good executives. The alternate explanation is that those executives may be passing along inside information to the fund managers.

The researchers do not take a position about which explanation is more likely.

“Everything we have is consistent with both explanations,” said Andrea Frazzini, an assistant professor at the University of Chicago and one of the studys three authors. But he added, “We have no evidence of wrongdoing by any of these fund managers.”

Officials from the U.S. Securities and Exchange Commission have asked the authors to present their findings next month at one of the regular seminars held within the commissions Office of Economic Analysis.

The paper is the latest example of an approach that might be called investigative economics, in which researchers dig through enormous amounts of data to look for patterns. In 2005, this kind of research helped uncover the widespread backdating of stock options, a scandal that has since resulted in criminal complaints against some company executives and the resignations of a number of others.

Other research led Eliot Spitzer, who was then New York State attorney general, to crack down on illegal after-hours trading by mutual funds.

It remains unclear whether the latest paper will have any similar impact or whether it has pointed to improper trading. But some other economists who have read the paper said they believed that it probably had, even if the extent of such trading might be relatively small.

“Its a very good paper,” said Michael Weisbach, a finance professor at the University of Illinois. “It suggests that there is illegal activity going on, but it doesnt provide the SEC a road map.

“You certainly cant prosecute someone for having a good return on a company by somebody they went to college with.”

The study is being distributed by the National Bureau of Economic Research, a nonprofit group in Cambridge, Massachusetts, that helps finance work by many of the countrys top economists. The authors have submitted the paper to The Journal of Political Economy, where it is being reviewed.

The authors have also been presenting it at academic seminars, as well as to the hedge fund arm of Goldman Sachs and to AQR Capital Management, another hedge fund. Regardless of their cause, the patterns are of potential interest to other investors, who could track the investments of mutual fund managers and mimic those strategies that seemed to work especially well.

“Something about these social networks is allowing portfolio managers to better predict the future returns of companies within the network,” said Lauren Cohen of Yale, another author.

The study looked only at mutual funds, which are required to report their holdings and performance regularly. It did not examine hedge funds, which are investment pools for wealthy individuals and institutions; hedge funds do not have to disclose their holdings publicly.

Cohen, Frazzini and the third researcher, Christopher Malloy, of London Business School, are all in their late 20s or early 30s. They were inspired to do the study partly by how often they noticed people talking about their alma maters when they were introduced to each other in the business world, Cohen said. The economists wondered whether these social networks affected investment choices.

Their study, titled “The Small World of Investing,” examined 85 percent of the total assets under management from 1990 to 2006 and looked at different levels of university connections.

In the weakest kind of connection, a fund manager and one of a companys top three executives shared nothing more than an alma mater.

They could have attended different schools within the university and been on campus decades apart.

In the strongest connection, a fund manager and one of the top three executives attended the same school at the same university, and their time on campus overlapped. The most common shared school in the study, by far, was Harvard Business School.

On average, investments in companies where there was no connection returned 11.7 percent a year before fees, according to the economists estimates. Investments in companies with the closest level of connection - when a fund manager attended school with an executive - returned 20.1 percent a year.

June 5, 2007 — Goodbye, skinny. Hello, wide.

Wide-leg jeans are showing up on celebrities such as Jessica Alba and are fast becoming the must-have fashion look, potentially giving retailers a way to jump-start flagging denim sales.

Scoop NYC, the chain of trendy New York boutiques, recently e-mailed a flyer to customers promoting the wide-leg look for summer. Bloomingdale’s said wide-leg styles from James, Citizens of Humanity and Page are among its best sellers. And Free People said a wide-leg jean from Ditto was its No. 1-selling pant last week.

After trying to squeeze into skinny-leg jeans for the past year, consumers are breathing a collective sigh of relief as wider styles that are easier to wear take to the fashion forefront. The new looks, priced around $200, are also giving shoppers a reason to stuff yet another pair of jeans into their already denim-laden closets.

“Wide-leg jeans are selling really well, probably to the relief of all of us who didn’t look so great in the skinny jeans,” said Stephanie Solomon, of Bloomingdale’s.

After growing by double digits for the past few years, denim sales have tapered off more recently. For the 12 months that ended in March, U.S. denim sales totaled $13.4 billion, down slightly from $13.5 billion in the year-earlier period, according to the NPD Group.

“Skinny isn’t over, but the wide leg is what’s really hot in denim right now and driving a lot of the sales,” said Danielle De Marne women’s fashion director for Scoop NYC.

Denim makers are taking a page from fashion designers such as Marc Jacobs, Martin Grant and Carolina Herrera, all of whom showcased full-leg trousers in recent runway shows.

Trend watchers said the new silhouette will really take off come fall, when menswear-inspired sportswear is expected to be a big look.

Hudson said sales of its wide-leg jeans are far outpacing expectations. Since November, Hudson has shipped 30,000 pairs of wide-leg jeans, more than double what it would normally ship for a new style, said Vice President Rick Spielberg.

Wide-leg jeans tend to be narrow through the waist and hips and then open up through the thigh and leg. They’re not to be confused with boot cut styles, which are fitted through the thigh and then flare at the bottom. Hudson’s wide-leg jean is about double the width through the thigh and leg of its boot cut styles.

Not everyone is raving about the wide-leg. “There is so much extra fabric that if you are a little heavy or on the shorter side it can be overpowering,” said Jennifer Scott, a buyer with Atrium.

Q: I have no problem with people being well-compensated, but there has to be some relationship between effort and reward. Does a real-estate broker in San Francisco really work that much harder than a broker in a lower-priced market, such as Kansas City? Why should their compensation be directly related to the price of the goods sold?

A: I have received many similar queries in recent weeks. There seems to be growing support in the Bay Area for a flat-fee commission structure in real estate.

This can be attributed largely to the recent bubble in home prices. There is considerable resentment toward agents who continued to skim off 6 percent of soaring sales prices even when houses were practically selling themselves.

My own approach has been to recommend a drastic reduction in the standard commission percentage — from 6 percent to something like 1 percent. But a flat-fee structure seems to make good sense, for the reason the questioner points out, and could produce about the same outcome.

Actually, there already are some brokers who charge a flat, reasonable fee. I urge prospective home sellers to check them out.

Some readers have suggested that compensation for the sale of a home be keyed to the amount of time the agents spend selling that home — sort of the way lawyers bill their clients. But this could prove too tempting for ethically challenged agents, who might drag out the time they spend on a done deal, or even submit phony bills.

Q: In a recent column you warned a man in his 80s to steer clear of stocks. I am in my 70s, and at two banks where I have certificates of deposit I have been urged to get into stock mutual funds. One employee told me that several of his customers were elderly. I wonder how many other people are being misled.

A: Does anyone remember those old cartoons in which a wolf would gaze at an innocent lamb, and in his mind’s eye it became a stack of grilled chops? That often seems to be what happens when elderly people consult with smooth-talking, commission-hungry professionals.

Without your telling me, I can safely guess that the mutual funds your bankers recommended were front-end-load funds, which take away part of your investment to pay a fat commission to the person who sells them. Did the bankers also try to sell you variable annuities?

I’ll repeat some advice I’ve given before: If someone wants to sell you an investment product, don’t make a move before you get a second opinion from a financially savvy person who doesn’t have a stake in the deal.

Q: I have an IRA account worth about $500,000. Is the money in the account considered part of my estate for estate-tax purposes?

A: An IRA is included as part of the owner’s gross estate, usually at whatever the value was on the date the owner dies, says Internal Revenue Service spokesman Jesse Weller. The term “gross estate” refers to the value of all property in which the deceased had an interest at the time of death.

For this year and next, the federal estate-tax exclusion amounts to $2 million, meaning that generally, estates exceeding that amount are subject to the tax. The exclusion is scheduled to rise to $3.5 million in 2009, and the following year the estate tax disappears entirely.

Don’t break open that bottle of champagne just yet, however, because the estate tax returns for 2011 and following years, unless Congress acts to the contrary.

If you expect to have a taxable estate, it would be wise to consult a lawyer or other professional who specializes in estate taxes. The laws probably are too complicated for most do-it-yourselfers.

Moneybag appears three times a month in the Sunday Chronicle. Send questions to moneybag@sfchronicle.com or to Arthur M. Louis, Moneybag column, 901 Mission St., San Francisco, CA 94103.