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

Laura Manuela Escobar Pradilla and Alvaro Pedraza

No 8767, Policy Research Working Paper Series from The World Bank

Abstract: Active investors often generate inferior returns. Social interactions might exacerbate this tendency, but the causal link between peer effects and active trading is difficult to identify empirically. This paper exploits the exogenous assignment of students to classrooms in a large-scale financial education initiative to evaluate the transmission of trading strategies among individual investors. The paper shows that students assigned to groups where classmates have more trading background, are more likely to start trading after completing the program. These social effects are stronger when peers have experienced favorable outcomes. The paper documents a negative consequence from social interactions: students that registered for courses where peer returns are large, generate lower trading profits than other investors. The evidence is consistent with social learning under biased information -- people share their most successful experiences, encouraging stock trading among uninformed investors. The results shed light on the role of selective communication in the transmission and adoption of ideas, and more importantly, in the behavior of people expose to biased information. The findings show that social learning can lead to misguided decisions when peer choices are not accurately observed by members of the social network.

Keywords: International Trade and Trade Rules; Educational Sciences; Gender and Development; Financial Literacy; Educational Institutions&Facilities; Effective Schools and Teachers (search for similar items in EconPapers)
Date: 2019-03-07
New Economics Papers: this item is included in nep-fle, nep-net, nep-soc and nep-ure
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://documents.worldbank.org/curated/en/90128155 ... smission-Channel.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wbk:wbrwps:8767

Access Statistics for this paper

More papers in Policy Research Working Paper Series from The World Bank 1818 H Street, N.W., Washington, DC 20433. Contact information at EDIRC.
Bibliographic data for series maintained by Roula I. Yazigi ().