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Federal Reserve Bank of Cleveland
Working Papers (Old Series)
Peer Pressure: Social Interaction and the Disposition Effect
Rawley 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.


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Rawley Heimer, Peer Pressure: Social Interaction and the Disposition Effect, Federal Reserve Bank of Cleveland, Working Papers (Old Series) 1618, 14 Jul 2016.
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Keywords: Social Network; Investments; Disposition Effect; Influence
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