Real Estate Shocks and Financial Advisor Misconduct

56 Pages Posted: 14 Jun 2018 Last revised: 29 Nov 2018

See all articles by Stephen G. Dimmock

Stephen G. Dimmock

Nanyang Technological University - Division of Finance

William Christopher Gerken

University of Kentucky - Finance

Tyson D. Van Alfen

University of Kentucky, Gatton College of Business and Economics, Department of Finance & Quantitative Methods

Date Written: November 28, 2018

Abstract

We test whether household wealth shocks affect professional misconduct by financial advisors. We use a panel of advisors' home addresses and examine within-advisor variation relative to other advisors who work at the same firm and live in the same ZIP code. We show that advisors increase misconduct following declines in their homes' values. The increased misconduct is due, in part, to willful actions, such as churning. We show that advisors' housing returns explain misconduct targeting out-of-state customers, breaking the link between customer and advisor housing shocks. Further, the results are stronger for advisors with lower career risk from committing misconduct.

Keywords: Financial advisors, Brokers, Financial misconduct, Fraud, Household finance, Real estate, Bankruptcy

JEL Classification: G20, G24, G28, K22, R31, D14, D18

Suggested Citation

Dimmock, Stephen G. and Gerken, William Christopher and Van Alfen, Tyson D., Real Estate Shocks and Financial Advisor Misconduct (November 28, 2018). Available at SSRN: https://ssrn.com/abstract=3187082 or http://dx.doi.org/10.2139/ssrn.3187082

Stephen G. Dimmock (Contact Author)

Nanyang Technological University - Division of Finance ( email )

S3-B1B-76 Nanyang Avenue
Singapore, 639798
Singapore

William Christopher Gerken

University of Kentucky - Finance ( email )

College of Business & Economics
Lexington, KY 40506-0034
United States

HOME PAGE: http://www.willgerken.com

Tyson D. Van Alfen

University of Kentucky, Gatton College of Business and Economics, Department of Finance & Quantitative Methods ( email )

Lexington, KY 40506
United States

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