Good Peers, Good Apples? Peer Effects in Portfolio Quality

Olga Balakina (), Claes Bäckman (), Andreas Hackethal (), Tobin Hanspal () and Dominique M. Lammer ()
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Olga Balakina: Department of Economics and Business Economics, Aarhus University, Postal: Fuglesangs Alle 4, DK-8210 Aarhus V, Denmark
Claes Bäckman: Department of Economics and Business Economics, Aarhus University, Knut Wiksell Center for Financial Studies, Lund University, Postal: Fuglesangs Alle 4, DK-8210 Aarhus V, Denmark
Andreas Hackethal: Goethe University Frankfurt, Leibniz Institute for Financial Research SAFE Frankfurt
Tobin Hanspal: Department of Finance, Vienna University of Economics and Business
Authors registered in the RePEc Author Service: Claes Bäckman

Economics Working Papers from Department of Economics and Business Economics, Aarhus University

Abstract: Peer effects can lead to better financial outcomes or help propagate financial mistakes across social networks. Using unique data on peer relationships and portfolio composition, we show considerable overlap in investment portfolios when an investor recommends their brokerage to a peer. We argue that this is strong evidence of peer effects and show that peer effects lead to better portfolio quality. Peers become more likely to invest in funds when their recommenders also invest, improving portfolio diversification compared to the average investor and various placebo counterfactuals. Our evidence suggests that social networks can provide good advice in settings where individuals are personally connected.

Keywords: Household finance; investment decisions; investment behavior; peer effects; social networks (search for similar items in EconPapers)
JEL-codes: D14 G11 G4 (search for similar items in EconPapers)
Pages: 72
Date: 2022-07-18
New Economics Papers: this item is included in nep-net and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Good peers, good apples? Peer effects in portfolio quality (2022)
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