How Do Investment Ideas Spread through Social Interaction? Evidence from a Ponzi Scheme

92 Pages Posted: 19 Mar 2015 Last revised: 14 Feb 2019

See all articles by Ville Rantala

Ville Rantala

University of Miami - Department of Finance

Date Written: February 6, 2019

Abstract

A unique dataset from a large Ponzi scheme allows me to study the spreading process of word-of-mouth investment information. Investors could join the scheme only by invitation from an existing member, and I can observe how the idea spreads from one person to the next based on the inviter-invitee relationships. The observed social network has so-called scale-free connectivity structure, which can significantly facilitate the spreading of the investment idea and contribute to the growth and survival of socially spreading Ponzi schemes. I also find that investors invest more if their inviter has comparatively higher age, education, and income.

Keywords: Investor behavior, peer effect, Ponzi scheme, social network, word-of-mouth

JEL Classification: D14, D83, G11

Suggested Citation

Rantala, Ville, How Do Investment Ideas Spread through Social Interaction? Evidence from a Ponzi Scheme (February 6, 2019). Journal of Finance, Forthcoming; 6th Miami Behavioral Finance Conference. Available at SSRN: https://ssrn.com/abstract=2579847 or http://dx.doi.org/10.2139/ssrn.2579847

Ville Rantala (Contact Author)

University of Miami - Department of Finance ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States

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