Learning from Coworkers: Peer Effects on Individual Investment Decisions

46 Pages Posted: 20 Nov 2017  

Paige Ouimet

University of North Carolina at Chapel Hill

Geoffrey A. Tate

University of North Carolina Kenan-Flagler Business School; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: October 2017

Abstract

We use unique data on employee decisions in the employee stock purchase plans (ESPPs) of U.S. public firms to measure the influence of networks on investment decisions. Comparing only employees within a firm during the same election window and controlling for a metro area fixed effect, we find that the local choices of coworkers to participate in the firm’s ESPP exert a significant influence on employees’ own decisions to participate. Local coworkers’ trading patterns also disseminate to colleagues through the network. In the cross-section, we find that some employees (men, younger workers) are particularly susceptible to peer influence. Generally, we find that more similar employees exert greater influence on each other’s decisions and, particularly, that high (low) information employees are most affected by other high (low) information employees. However, we also find that the presence of high information employees magnifies the effects of peer networks. We trace a value-increasing investment choice through employee networks. Thus, our analysis suggests the potential of networks and targeted investor education to improve financial decision-making.

Keywords: Peer Effects, Networks, Employer-Sponsored Plans, ESPP

JEL Classification: D14, G11, G02

Suggested Citation

Ouimet, Paige and Tate, Geoffrey A., Learning from Coworkers: Peer Effects on Individual Investment Decisions (October 2017). Available at SSRN: https://ssrn.com/abstract=3072577 or http://dx.doi.org/10.2139/ssrn.3072577

Paige Ouimet

University of North Carolina at Chapel Hill ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States

Geoffrey A. Tate (Contact Author)

University of North Carolina Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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