Active Trading and (Poor) Performance : The Social Transmission Channel

Escobar, Laura ; Pedraza, Alvaro

World Bank, Washington, DC

关键词: STOCK MARKET;    MARKET PARTICIPATION;    PEER EFFECTS;    ACTIVE TRADING;    PENSION FUNDS;   

DOI  :  10.1596/1813-9450-8767
RP-ID  :  WPS8767

学科分类：社会科学、人文和艺术（综合）

来源: World Bank Open Knowledge Repository

【 摘 要 】

Individuals often invest actively andgenerate inferior returns. Social interactions mightexacerbate this tendency, but the causal effect from peereffects on active trading are difficult to identifyempirically. This paper exploits the exogenous assignment ofstudents to classrooms in a large-scale financial educationinitiative to evaluate the transmission of tradingstrategies among individual investors. The paper shows thatfavorable peer returns on single-stock transactionsstimulate market entry among inexperienced investors, evenwhen total portfolio performance among peers is negative.The results are consistent with selective communication:individuals with trading background share their mostfavorable trades, which attracts others to the stock market.Inexperienced individuals who are exposed to peers withlarge returns on single trades appear to overestimate thevalue of active trading. The paper finds that these rookieinvestors make more stock transactions, trade morespeculatively, but also generate inferior returns. Thefindings show the strength of social communication as a keydeterminant of financial decision making.