Peer Performance and Stock Market Entry

41 Pages Posted: 14 Mar 2009 Last revised: 6 Apr 2011

See all articles by Markku Kaustia

Markku Kaustia

Aalto University School of Business

Samuli Knüpfer

BI Norwegian Business School; Research Institute of Industrial Economics (IFN)

Date Written: January 3, 2011

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.

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

JEL Classification: G11, D83

Suggested Citation

Kaustia, Markku and Knüpfer, Samuli, Peer Performance and Stock Market Entry (January 3, 2011). AFA 2010 Atlanta Meetings Paper; EFA 2009 Bergen Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1359006 or http://dx.doi.org/10.2139/ssrn.1359006

Markku Kaustia

Aalto University School of Business ( email )

P.O. Box 1210
Helsinki, 00100
Finland
+3589 4313 8475 (Phone)
+3589 4313 8678 (Fax)

Samuli Knüpfer (Contact Author)

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

HOME PAGE: http://www.samuliknupfer.com

Research Institute of Industrial Economics (IFN)

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

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