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Peer Pressure: Social Interaction and the Disposition Effect

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  • Rawley Z. Heimer

Abstract

Social interaction contributes to some traders’ disposition effect. New data from an investment-specific social network linked to individual-level trading records builds evidence of this connection. To credibly estimate causal peer effects, I exploit the staggered entry of retail brokerages into partnerships with the social trading web platform and compare trader activity before and after exposure to these new social conditions. Access to the social network nearly doubles the magnitude of a trader’s disposition effect. Traders connected in the network develop correlated levels of the disposition effect, a finding that can be replicated using workhorse data from a large discount brokerage.Received September 8, 2015; accepted May 3, 2016 by Editor Stefan Nagel.

Suggested Citation

  • Rawley Z. Heimer, 2016. "Peer Pressure: Social Interaction and the Disposition Effect," The Review of Financial Studies, Society for Financial Studies, vol. 29(11), pages 3177-3209.
    • Handle: RePEc:oup:rfinst:v:29:y:2016:i:11:p:3177-3209.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhw063
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    More about this item

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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