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Peer performance and stock market entry

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  • Kaustia, Markku
  • Knüpfer, Samuli

Abstract

Peer performance can influence the adoption of financial innovations and investment styles. We present evidence of this type of social influence: recent stock returns that local peers experience affect an individual's stock market entry decision, particularly in areas with better opportunities for social learning. The likelihood of entry does not decrease as returns fall below zero, consistent with people not talking about decisions that have produced inferior outcomes. Market returns, media coverage, local stocks, omitted local variables, short sales constraints, and stock purchases within households do not seem to explain these results.

Suggested Citation

  • Kaustia, Markku & Knüpfer, Samuli, 2012. "Peer performance and stock market entry," Journal of Financial Economics, Elsevier, vol. 104(2), pages 321-338.
    • Handle: RePEc:eee:jfinec:v:104:y:2012:i:2:p:321-338
    DOI: 10.1016/j.jfineco.2011.01.010
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    More about this item

    Keywords

    Investor behavior; Peer effect; Social interaction; Social influence; Stock market participation;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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