Active trading and (poor) performance: The social transmission channel

Laura Escobar and Alvaro Pedraza

Journal of Financial Economics, 2023, vol. 150, issue 1, 139-165

Abstract: We study the influence from social interactions on equity trading. Using unique data on stock transactions, we exploit the quasi-random assignment of students to classrooms in a financial training program to identify how peer experience affects investor behavior. We find that individuals react more to peer gains than to peer losses. Students enrolled in courses where peers have positive outcomes: (i) are more likely to start trading, (ii) purchase similar stocks as their classmates, and (iii) are disproportionally attracted to stocks with extreme returns. These stocks have low subsequent returns, and new investors reacting to peer gains underperform other investors.

Keywords: Stock market participation; Peer effects; Active trading; Lottery stocks; Social finance (search for similar items in EconPapers)
JEL-codes: D83 G11 G41 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:150:y:2023:i:1:p:139-165

DOI: 10.1016/j.jfineco.2023.103706

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