Peer Effects, Personal Characteristics and Asset Allocation

Abstract

We study the relative importance of social factors (including household, workplace, and neighbourhood peer effects) and personal characteristics (including age, gender, tax rates, and funds under management) for asset allocation decisions. The most important factors (in order) are household peer effects, personal characteristics and workplace peer effects. Neighborhood peer effects and financial advice play a less important role. We are able to instrument for both household and workplace peer effects and find a causal relation. All external effects combined explain twice the variation of personal characteristics alone in asset allocation choices.

Keywords: Asset allocation, behavioral finance, financial advice, household finance, individual investors, mutual funds, personal characteristics, peer effects, social

JEL Classification: G02, G11, D12, D14