Peer Performance and Stock Market Entry

Abstract (via SSRN)

Peer performance can influence the adoption of financial innovations and investment styles. We present empirical evidence of this type of social influence: recent stock market returns that local peers experience strongly influence an individual’s stock market entry decision. This effect is limited to positive returns that encourage entry, whereas negative returns do not make entry less likely. Market returns, media coverage, returns on locally held stocks, omitted local variables, and stock purchases within households do not drive our results. This type of social influence may partly explain, among other things, why participation rates tend to sharply increase in times of high market returns.

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10. May 2010 by Miguel Barbosa
Categories: Curated Readings, Finance & Investing | Leave a comment

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