Long Term Savings Decisions: Financial Reform, Peer Effects and Ethnicity

42 Pages Posted: 27 Feb 2012 Last revised: 2 May 2014

Yevgeny Mugerman

Hebrew University of Jerusalem - Jerusalem School of Business Administration

Orly Sade

Hebrew University of Jerusalem - Department of Finance

Moses Shayo

The Hebrew University of Jerusalem - Department of Economics

Date Written: May 2, 2014

Abstract

In 2005, a drastic reform in the Israeli capital market shifted the power to choose savings vehicles from employers to individuals. Using a unique dataset from a large employer, this event provides us a rare window into individuals’ savings decisions and the effect of their social environment. In the first year following the reform’s implementation, 7% of the employees switched out of the fund in which they all previously saved. Choice of fund was not associated with observable measures of fund performance, but was strongly affected by the employees’ social environment. Exploiting within-department variation in peer groups, we find that savings decisions were strongly influenced by the choices of co-workers from the same ethnic group. Interviews also point to the influence of non-professional colleagues.

Keywords: financial reform, long term savings, peer effects

JEL Classification: D14, G11, G14

Suggested Citation

Mugerman, Yevgeny and Sade, Orly and Shayo, Moses, Long Term Savings Decisions: Financial Reform, Peer Effects and Ethnicity (May 2, 2014). Available at SSRN: https://ssrn.com/abstract=2011338 or http://dx.doi.org/10.2139/ssrn.2011338

Yevgeny Mugerman (Contact Author)

Hebrew University of Jerusalem - Jerusalem School of Business Administration ( email )

Mount Scopus
Jerusalem, 91905
Israel

Orly Sade

Hebrew University of Jerusalem - Department of Finance ( email )

Mount Scopus
Jerusalem, 91905
Israel
972 2 588 3227 (Phone)

Moses Shayo

The Hebrew University of Jerusalem - Department of Economics ( email )

Mount Scopus
Jerusalem, IL 91905
Israel

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