Department of Economics and Business Economics

Good Peers, Good Apples? Peer Effects in Portfolio Quality

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  • wp22_02

    Final published version, 853 KB, PDF document

  • Olga Balakina
  • Claes Bäckman
  • Andreas Hackethal, Goethe University Frankfurt, Leibniz Institute for Financial Research SAFE
  • ,
  • Tobin Hanspal, WU Vienna University of Economics and Business
  • ,
  • Dominique M. Lammer
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.
Original languageEnglish
Place of publicationAarhus
PublisherInstitut for Økonomi, Aarhus Universitet
Number of pages72
Publication statusPublished - 18 Jul 2022
SeriesEconomics Working Papers
Number2022-02

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