Peer Performance and Stock Market Entry

Abstract:     
Peer performance can influence the adoption of financial innovations and investment styles. We present evidence of this type of social influence: recent stock returns that local peers experience influence an individual’s stock market entry decision, particularly in areas with better opportunities for social learning. The likelihood of entry does not decrease as returns fall below zero, consistent with people not talking about decisions that have produced inferior outcomes. Market returns, media coverage, local stocks, omitted local variables, short sales constraints, and stock purchases within households do not seem to explain these results.

Number of Pages in PDF File: 41

Keywords: Investor behavior, peer effect, social interaction, social influence, stock market participation

JEL Classification: G11, D83

working papers series