Real Estate Shocks and Financial Advisor Misconduct
41 Pages Posted: 14 Jun 2018
Date Written: May 29, 2018
We test whether household wealth shocks affect professional misconduct by financial advisors. Using a novel panel containing all home addresses belonging to 434,447 advisors, we exploit within-advisor variation and show that advisors increase misconduct following declines in their homes' values. We find similar results in specifications that exploit variation in cumulative house price return, allowing us to limit the comparison to advisors living in the same ZIP code during the same year. We find evidence that the increase in misconduct is due to willful actions by advisors, such as unauthorized or excess trading, as well as neglect or distraction due to financial pressure.
Keywords: Financial advisors, financial misconduct, fraud, real estate, bankruptcy
JEL Classification: G2, G20, G28, K2, K22, R31
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