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Long term savings decisions: Financial reform, peer effects and ethnicity

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  • Mugerman, Yevgeny
  • Sade, Orly
  • Shayo, Moses

Abstract

In 2005, a drastic reform in the Israeli capital market shifted the power to choose savings vehicles from employers to individuals. Using a unique dataset from a large employer, this event provides us a rare window into individuals’ savings decisions and the effect of their social environment. In the first year following the reform's implementation, 7% of the employees switched out of the fund in which they all previously saved. Choice of fund was not associated with observable measures of fund performance, but was strongly affected by the employees’ social environment. Exploiting within-department variation in peer groups, we find that savings decisions were strongly influenced by the choices of co-workers from the same ethnic group. Interviews also point to the influence of non-professional colleagues.

Suggested Citation

  • Mugerman, Yevgeny & Sade, Orly & Shayo, Moses, 2014. "Long term savings decisions: Financial reform, peer effects and ethnicity," Journal of Economic Behavior & Organization, Elsevier, vol. 106(C), pages 235-253.
  • Handle: RePEc:eee:jeborg:v:106:y:2014:i:c:p:235-253
    DOI: 10.1016/j.jebo.2014.07.002
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    2. repec:boi:isrerv:v:14:y:2016:i:1:p:75-95 is not listed on IDEAS
    3. Maya Haran Rosen & Orly Sade, 2019. "Does Financial Regulation Unintentionally Ignore Less Privileged Populations? The Investigation of a Regulatory Fintech Advancement, Objective and Subjective Financial Literacy," Natural Field Experiments 00662, The Field Experiments Website.
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    More about this item

    Keywords

    Financial reform; Savings decisions; Peer effects;

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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