SAFE working paper
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- Gambling (1)
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- peer effects (1)
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353
Peer effects can lead to better financial outcomes or help propagate financial mistakes across social networks. Using unique data on peer relationships and portfolio composition, we show considerable overlap in investment portfolios when an investor recommends their brokerage to a peer. We argue that this is strong evidence of peer effects and show that peer effects lead to better portfolio quality. Peers become more likely to invest in funds when their recommenders also invest, improving portfolio diversification compared to the average investor and various placebo counterfactuals. Our evidence suggests that social networks can provide good advice in settings where individuals are personally connected.
373
Previous studies document a relationship between gambling activity at the aggregate level and investments in securities with lottery-like features. We combine data on individual gambling consumption with portfolio holdings and trading records to examine whether gambling and trading act as substitutes or complements. We find that gamblers are more likely than the average investor to hold lottery stocks, but significantly less likely than active traders who do not gamble. Our results suggest that gambling behavior across domains is less relevant compared to other portfolio characteristics that predict investing in high-risk and high-skew securities, and that gambling on and off the stock market act as substitutes to satisfy the same need, e.g., sensation seeking.