Good Peers, Good Apples? Peer Effects in Portfolio Quality

73 Pages Posted: 18 Jul 2022 Last revised: 2 Aug 2022

See all articles by Olga Balakina

Olga Balakina

Aarhus University

Claes Bäckman

Aarhus University - Department of Economics and Business Economics; Knut Wicksell Centre for Financial Studies

Andreas Hackethal

Goethe University Frankfurt - Faculty of Economics and Business Administration; Leibniz Institute for Financial Research SAFE

Tobin Hanspal

WU Vienna University of Economics and Business; Vienna Graduate School of Finance (VGSF)

Dominique Lammer

affiliation not provided to SSRN

Date Written: June 30, 2022

Abstract

Peer effects can lead to better financial outcomes or help propagate financial mistakes across social networks. Using unique data on peer relationships and portfolio composition, we show considerable overlap in investment portfolios when an investor recommends their brokerage to a peer. We argue that this is strong evidence of peer effects and show that peer effects lead to better portfolio quality. Peers become more likely to invest in funds when their recommenders also invest, improving portfolio diversification compared to the average investor and various placebo counterfactuals. Our evidence suggests that social networks can provide good advice in settings where individuals are personally connected.

Keywords: Household finance, investment decisions, investment behavior, peer effects, social networks

JEL Classification: D14, G11, G4

Suggested Citation

Balakina, Olga and Bäckman, Claes and Hackethal, Andreas and Hanspal, Tobin and Lammer, Dominique, Good Peers, Good Apples? Peer Effects in Portfolio Quality (June 30, 2022). SAFE Working Paper No. 353, Available at SSRN: https://ssrn.com/abstract=4150243 or http://dx.doi.org/10.2139/ssrn.4150243

Olga Balakina

Aarhus University ( email )

Fuglesangs Allé 4
Aarhus V, 8210
Denmark

Claes Bäckman

Aarhus University - Department of Economics and Business Economics ( email )

Fuglesangs Allé 4
Aarhus V, 8210
Denmark

Knut Wicksell Centre for Financial Studies ( email )

Box 7080
Lund, SE-220 07
Sweden

Andreas Hackethal

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno Platz 3
Frankfurt am Main, 60323
Germany

Leibniz Institute for Financial Research SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Tobin Hanspal (Contact Author)

WU Vienna University of Economics and Business ( email )

Welthandelsplatz 1 1
Wien, 1020
Austria

Vienna Graduate School of Finance (VGSF) ( email )

Welthandelsplatz 1
Vienna, 1020
Austria

Dominique Lammer

affiliation not provided to SSRN

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