Peer Pressure: Social Interaction and the Disposition Effect

Review of Financial Studies, 29(11): 3177-3209.

74 Pages Posted: 2 Nov 2014 Last revised: 23 Nov 2020

See all articles by Rawley Heimer

Rawley Heimer

Arizona State University (ASU) - W.P. Carey School of Business

Date Written: April 27, 2016

Abstract

Social interaction contributes to some traders' disposition effect. New data from an investment-specific social network linked to individual-level trading records builds evidence of this connection. To credibly estimate causal peer effects, I exploit the staggered entry of retail brokerages into partnerships with the social trading web-platform and compare trader activity before and after exposure to these new social conditions. Access to the social network nearly doubles the magnitude of a trader's disposition effect. Traders connected in the network develop correlated levels of the disposition effect, a finding that can be replicated using workhorse data from a large discount brokerage.

Keywords: Individual Investors, Disposition Effect, Behavioral Biases, Social Networks, Causal Peer Effects

Suggested Citation

Heimer, Rawley, Peer Pressure: Social Interaction and the Disposition Effect (April 27, 2016). Review of Financial Studies, 29(11): 3177-3209., Available at SSRN: https://ssrn.com/abstract=2517772 or http://dx.doi.org/10.2139/ssrn.2517772

Rawley Heimer (Contact Author)

Arizona State University (ASU) - W.P. Carey School of Business ( email )

Tempe, AZ 85287-3706
United States

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