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Learning from Coworkers: Peer Effects on Individual Investment Decisions

Author

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  • PAIGE OUIMET
  • GEOFFREY TATE

Abstract

Using unique data on employee stock purchase plans (ESPPs), we examine the influence of networks on investment decisions. Comparing employees within a firm during the same election window with metro area fixed effects, we find that the choices of coworkers in the firm's ESPP exert a significant influence on employees’ own decisions to participate and trade. Moreover, we find that the presence of high‐information employees magnifies the effects of peer networks. Given participation in an ESPP is value‐maximizing, our analysis suggests the potential of networks and targeted investor education to improve financial decision‐making.

Suggested Citation

  • Paige Ouimet & Geoffrey Tate, 2020. "Learning from Coworkers: Peer Effects on Individual Investment Decisions," Journal of Finance, American Finance Association, vol. 75(1), pages 133-172, February.
    • Handle: RePEc:bla:jfinan:v:75:y:2020:i:1:p:133-172
    DOI: 10.1111/jofi.12830
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    Cited by:

    1. Ruenzi, Stefan & Maeckle, Kai, 2023. "Friends with Drugs: The Role of Social Networks in the Opioid Epidemic," VfS Annual Conference 2023 (Regensburg): Growth and the "sociale Frage" 277574, Verein für Socialpolitik / German Economic Association.
    2. Theresa Kuchler & Monika Piazzesi & Johannes Stroebel, 2022. "Housing Market Expectations," CESifo Working Paper Series 9665, CESifo.
    3. Nicolas Aubert & Miguel Cordova & Gonzalo Hernandez, 2023. "Sharing the ownership in Peru and Mexico: The case of a French MNE prompting the SDGs achievement," Post-Print hal-03951463, HAL.
    4. Arnold, Marc & Pelster, Matthias & Subrahmanyam, Marti G., 2022. "Attention triggers and investors’ risk-taking," Journal of Financial Economics, Elsevier, vol. 143(2), pages 846-875.
    5. Arrondel, Luc & Calvo-Pardo, Hector & Giannitsarou, Chryssi & Haliassos, Michael, 2022. "Informative social interactions," Journal of Economic Behavior & Organization, Elsevier, vol. 203(C), pages 246-263.
    6. Escobar, Laura & Pedraza, Alvaro, 2023. "Active trading and (poor) performance: The social transmission channel," Journal of Financial Economics, Elsevier, vol. 150(1), pages 139-165.
    7. Lou, Youcheng & Yang, Yaqing, 2023. "Information linkages in a financial market with imperfect competition," Journal of Economic Dynamics and Control, Elsevier, vol. 150(C).
    8. Farrell, Michael & Green, T. Clifton & Jame, Russell & Markov, Stanimir, 2022. "The democratization of investment research and the informativeness of retail investor trading," Journal of Financial Economics, Elsevier, vol. 145(2), pages 616-641.
    9. Theresa Kuchler & Johannes Stroebel, 2021. "Social Finance," Annual Review of Financial Economics, Annual Reviews, vol. 13(1), pages 37-55, November.
    10. Dur, Robert & Fleming, Dimitry & van Garderen, Marten & van Lent, Max, 2021. "A social norm nudge to save more: A field experiment at a retail bank," Journal of Public Economics, Elsevier, vol. 200(C).
    11. Ali-Rind, Asad & Boubaker, Sabri & Jarjir, Souad Lajili, 2023. "Peer effects in financial economics: A literature survey," Research in International Business and Finance, Elsevier, vol. 64(C).
    12. Samuli Knüpfer & Elias Rantapuska & Matti Sarvimäki, 2023. "Social Interaction in the Family: Evidence from Investors’ Security Holdings," Review of Finance, European Finance Association, vol. 27(4), pages 1297-1327.
    13. Àkos Aczél & Lajos Szabó, 2023. "Birds of a feather indebted together: Peer-effects on mortgage decisions," French Stata Users' Group Meetings 2023 20, Stata Users Group.
    14. Wagner, Peter A. & Klein, Nicolas, 2022. "Strategic investment and learning with private information," Journal of Economic Theory, Elsevier, vol. 204(C).
    15. Ren, Xiaohang & Zeng, Gudian & Sun, Xianming, 2023. "The peer effect of digital transformation and corporate environmental performance: Empirical evidence from listed companies in China," Economic Modelling, Elsevier, vol. 128(C).
    16. Shi, Lina & Gong, Stephen & Wang, Xingang, 2021. "Social network, corporate governance, and rent extraction in CEO compensation: Evidence from spatial econometric models," The British Accounting Review, Elsevier, vol. 53(4).
    17. An, Jiafu & Jiang, Mengfei & Xu, Jiaman, 2021. "Professional norms and risk-taking of bank employees: Do expectations of peers’ risk preferences matter?," Journal of Financial Stability, Elsevier, vol. 56(C).
    18. Arif Perdana & Pearpilai Jutasompakorn & Sunghun Chung, 2023. "Shaping crowdlending investors’ trust: Technological, social, and economic exchange perspectives," Electronic Markets, Springer;IIM University of St. Gallen, vol. 33(1), pages 1-17, December.
    19. Das, Tanmoy & Banerjee, Priyodorshi, 2023. "Peer effects on decision making in complex financial situations," Economic Modelling, Elsevier, vol. 127(C).
    20. Ajirloo, Bahman Fathi & Switzer, Lorne N., 2022. "Self-disclosed peer effects on corporate capital structure," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 78(C).
    21. Cramer, Kim Fe & Koont, Naz, 2021. "Peer effects in deposit markets," LSE Research Online Documents on Economics 119192, London School of Economics and Political Science, LSE Library.

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