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Peer effects in financial expectations

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  • Thornton, Joshua

Abstract

I provide evidence of a causal relationship between neighborhood financial expectations and individual financial expectations. I instrument for neighborhood financial expectations with average financial expectations of neighbors’ nonlocal family members. Additionally, a reverse causality test indicates that peer effects are unlikely to be driven by homophily. Consistent with a social interaction mechanism, I show that social individuals display larger peer effects. Next, I find that individuals who expect their financial situation to improve are less likely to save. This suggests that individuals act in accordance with their expectations. Finally, I show that individuals who incorporate neighborhood expectations form more accurate expectations when conditions support informative peer transmission.

Suggested Citation

  • Thornton, Joshua, 2026. "Peer effects in financial expectations," Journal of Empirical Finance, Elsevier, vol. 87(C).
    • Handle: RePEc:eee:empfin:v:87:y:2026:i:c:s0927539826000277
    DOI: 10.1016/j.jempfin.2026.101712
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