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Active trading and (poor) performance: The social transmission channel

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  • Escobar, Laura
  • Pedraza, Alvaro

Abstract

We study the influence from social interactions on equity trading. Using unique data on stock transactions, we exploit the quasi-random assignment of students to classrooms in a financial training program to identify how peer experience affects investor behavior. We find that individuals react more to peer gains than to peer losses. Students enrolled in courses where peers have positive outcomes: (i) are more likely to start trading, (ii) purchase similar stocks as their classmates, and (iii) are disproportionally attracted to stocks with extreme returns. These stocks have low subsequent returns, and new investors reacting to peer gains underperform other investors.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:jfinec:v:150:y:2023:i:1:p:139-165
    DOI: 10.1016/j.jfineco.2023.103706
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    More about this item

    Keywords

    Stock market participation; Peer effects; Active trading; Lottery stocks; Social finance;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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