Peer effects in multi-layer networks: evidence from financial behavior
| Authors | Balakina, Stockler |
| Year | 2025 |
| Type | Working Paper |
| Abstract | We examine the simultaneous peer effects of co-workers, family, and neighbors in financial behavior using Danish registry data. We find that neighbors exert the strongest influence, followed by co-workers and family members. Peer effects are stronger for stocks than for mutual funds, and among experienced investors. While co-workers primarily influence buying decisions, neighbors affect both buying and selling, suggesting distinct channels of influence across peer groups. A multi-layer network model formalizes our empirical results, showing that an investor’s trading activity depends on her centrality within and across network layers. Our findings provide new insights into the drivers and implications of peer effects in financial markets. |
| Keywords | Stock trading, peer effect, social networks, homophily, household finance |
| URL | https://ssrn.com/abstract=4058371 |
| Tags | Archival Empirical | Financing- and Investment Decisions (Individual) | Propagation of Noise / Undesirable Outcomes | Social Network Structure | Social Transmission Biases |
Personal financial advice and portfolio quality
| Authors | Balakina, Bäckman, Hackethal, Hanspal, Lammer |
| Year | 2024 |
| Type | Working Paper |
| Abstract | We document widespread use of personal financial advice among retail investors. Individuals seek competent and trusted sources for financial advice among their family and friends. Investors who provide advice to family and friends are positively selected and emphasize the reputational costs of giving risky financial advice. While previous studies have shown that advice shared on social media promotes active trading, we show that personal financial advice encourages investing in funds over single stocks. Our evidence complements the existing literature on financial advice in online social networks by highlighting differences in incentives and outcomes of advice to close personal connections. |
| Keywords | Social finance, portfolio choice, investment behavior, peer effects |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4150243 |
| Tags | Archival Empirical | Financing- and Investment Decisions (Individual) | Propagation of Noise / Undesirable Outcomes | Social Network Structure | Social Transmission Biases |
Beyond connectivity: stock market participation in a network
| Authors | Balakina, Bäckman, Parakhoniak |
| Year | 2024 |
| Type | Working Paper |
| Abstract | What are the aggregate and distributional consequences of the relationship between an individual’s social network and financial decisions? Motivated by several well-documented facts about the influence of social connections on financial decisions, we build and calibrate a model of stock market participation with a social network that emphasizes the interplay between connectivity and network structure. Since connections to informed agents help spreading information, there is a pivotal role for homophily. An increase in the average number of connections raises the average participation rate, mostly due to richer agents. Higher homophily benefits richer agents by creating clusters where information spreads more efficiently. We show empirical evidence consistent with the importance of connectivity and sorting. We discuss several new avenues for future research into the aggregate impact of peer effects in finance. |
| Keywords | Social networks, peer effects, stock market participation, connectivity, homophily |
| URL | https://ssrn.com/abstract=4763145 |
| Tags | Financing- and Investment Decisions (Individual) | Propagation of Noise / Undesirable Outcomes | Social Network Structure | Social Transmission Biases | Theory |
Gender bias and crowd-sourced financial information
| Authors | Bhagwat, Dim, Shirley, Stark |
| Year | 2023 |
| Type | Working Paper |
| Abstract | The capacity to aggregate information from diverse perspectives has positioned social finance forums as a potent source of signals that shape investors' beliefs. We study the Seeking Alpha forum to determine if female contributors face a more hostile environment than males and the consequences for effective information aggregation. We find that although male and female contributors display similar abilities, female-authored perspectives receive significantly lower engagement and trust from platform users. Females also face more heightened disagreement and attract more online trolls. This combative environment results in more female contributors quitting the platform, eroding the informativeness of the platform consensus, and implies relatively lower financial compensation for female contributors. |
| Keywords | Gender bias, social finance, social media, FinTech, information aggregation, disagreement |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4669864 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Propagation of Noise / Undesirable Outcomes |
Finfluencers
| Authors | Kakhbod, Kazempour, Livdan, Schuerhoff |
| Year | 2023 |
| Type | Working Paper |
| Abstract | Tweet-level data from a social media platform reveals low average accuracy and high dispersion in the quality of advice by financial influencers, or "finfluencers": 28% of finfluencers are skilled, generating 2.6% monthly abnormal returns, 16% are unskilled, and 56% have negative skill ("antiskill") generating -2.3% monthly abnormal returns. Consistent with homophily shaping finfluencers' social networks, antiskilled finfluencers have more followers and more influence on retail trading than skilled finfluencers. The advice by antiskilled finfluencers creates overly optimistic beliefs most times and persistent swings in followers' beliefs. Consequently, finfluencers cause excessive trading and inefficient prices such that a contrarian strategy yields 1.2% monthly out-of-sample performance |
| Keywords | Finfluencers, social media, mixture modeling, retail traders, homophily, belief bias |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4428232 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Financing- and Investment Decisions (Individual) | Media and Textual Analysis | Propagation of Noise / Undesirable Outcomes |
The impact of social media influencers on the financial market performance of firms
| Authors | Zhang, Keasey, Lambrinoudakis, Mascia |
| Year | 2023 |
| Type | Working Paper |
| Abstract | A key development in social media has been the remarkable growth of influencers and their increasing use by firms to manage their online presence and image, and to promote their products. Despite the huge growth of influencers and their use by firms, there is a lack of analysis of social media influencers and their impact on the financial market performance of firms. Anecdotal evidence suggests mega influencers are able to affect the stock prices of firms via social media. We ask whether the effect on stock prices identified in anecdotal evidence is generalizable to all mega influencers and other financial market characteristics of firms. After developing hypotheses from the Noise Trader model and using a hand collected dataset of more than 11,000,000 mega influencer posts on Instagram (2012-2019), we find that mega influencers affect investors' attention, volatility, trading volume and, through extreme sentiment posts, stock returns. The effect on returns is, however, very short lived. Companies need to be aware of these stock market consequences if they intend to use influencers for external image purposes and/or product promotion. |
| Keywords | Influencers, mega influencers, investors, sentiment, firms, financial market performance |
| URL | https://business.leeds.ac.uk/departments-accounting-finance/staff/71/dr-costas-lambrinoudakis |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Investment Decisions (Institutional) | Propagation of Noise / Undesirable Outcomes |
Epidemiological expectations
| Authors | Carroll, Wang |
| Year | 2022 |
| Type | Working Paper | Literature Review Paper |
| Abstract | 'Epidemiological' models of belief formation put social interactions at their core; such models are widely used by scholars who are not economists to study the dynamics of beliefs in populations. We survey the literature in which economists attempting to model the consequences of beliefs about the future -'expectations'- have employed a full-fledged epidemiological approach to explore an economic question. We draw connections to related work on 'contagion,' narrative economics, news/rumor spreading, and the spread of internet memes. A main theme of the paper is that a number of independent developments have recently converged to make epidemiological expectations ('EE') modeling more feasible and appealing than in the past. |
| Keywords | Economic expectations, epidemiological expectations, social interactions, social dynamics, information diffusion, economic narratives |
| URL | https://www.nber.org/papers/w30605?utm_campaign=ntwh&utm_medium=email&utm_source=ntwg4 |
| Tags | Asset Pricing, Trading Volume and Market Efficiency | Consumer Decisions | Financing- and Investment Decisions (Individual) | Investment Decisions (Institutional) | Manager / Firm Behavior | Media and Textual Analysis | Propagation of Noise / Undesirable Outcomes | Social Network Structure | Social Transmission Biases | Theory |
The ex ante likelihood of bubbles
| Authors | Chinco |
| Journal | Management Science |
| Year | 2022 |
| Type | Published Paper |
| Abstract | The limits of arbitrage explain how a speculative bubble is sustained; they do not explain how likely one is to occur. To do that, you need a theory about the thing that sporadically causes arbitrageur constraints to bind. I propose a first such theory, which is based on social interactions between speculators. The theory says that bubbles should be more likely in assets where increases in past returns make excited-speculators relatively more persuasive to their peers. I empirically verify this ex ante prediction about bubble likelihoods and show that it is robust to some ex post disagreement about bubble definitions. |
| Keywords | Limits to arbitrage, speculative bubbles, social interactions |
| URL | https://pubsonline.informs.org/doi/10.1287/mnsc.2022.4351 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Financing- and Investment Decisions (Individual) | Investment Decisions (Institutional) | Propagation of Noise / Undesirable Outcomes | Theory |
Echo chambers
| Authors | Cookson, Engelberg, Mullins |
| Journal | The Review of Financial Studies |
| Year | 2022 |
| Type | Published Paper |
| Abstract | We find evidence of selective exposure to confirmatory information among 400,000 users on the investor social network StockTwits. Self-described bulls are five times more likely to follow a user with a bullish view of the same stock than are self-described bears. Consequently, bulls see 62 more bullish messages and 24 fewer bearish messages than bears do over the same 50-day period. These âecho chambersâ exist even among professional investors and are strongest for investors who trade on their beliefs. Finally, beliefs formed in echo chambers are associated with lower ex post returns, more siloing of information, and more trading volume. |
| URL | https://academic.oup.com/rfs/article-abstract/36/2/450/6670640 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) | Propagation of Noise / Undesirable Outcomes | Social Network Structure | Social Transmission Biases |
Word-of-mouth communication and financial decision making
| Authors | Hwang |
| Year | 2022 |
| Type | Working Paper | Literature Review Paper |
| Abstract | I review the empirical literature on word of mouth (WOM) among investors. I begin with an outline of the empirical challenges that WOM research faces and possible strategies to overcome those challenges. I then discuss recent studies on WOM among retail and institutional investors. The research to date provides compelling evidence that WOM importantly determines investment decisions. On balance, the information transmitted through WOM does not appear to help investors make better investment decisions. I explore possible reasons. I also discuss potential asset pricing implications, the emergence of social technologies, and possible avenues for future research. |
| Keywords | Social asset pricing, social finance, investor psychology, investor behavior, asset prices |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4118285 |
| Tags | Asset Pricing, Trading Volume and Market Efficiency | Financing- and Investment Decisions (Individual) | Investment Decisions (Institutional) | Propagation of Noise / Undesirable Outcomes | Social Network Structure | Social Transmission Biases |
Social Networks, trading, and liquidity
| Authors | Peng, Wang, Zhou |
| Year | 2022 |
| Type | Working Paper | Literature Review Paper |
| Abstract | The recent meme stock saga has drawn attention to the growing role of social networks in capital markets. In this paper, the authors summarize the latest research that uses large scale, representative, real-world social network data to study social networks' influences on trading, liquidity, and valuations of stocks. Institutional investors invest more heavily in stocks if there are strong social ties between the geographic locations of the institution's headquarters and the firm's headquarters. Further, a firm's social ties to large institutional investors reduce its cost of capital, increase its valuation, and strengthen its liquidity. Social networks help to timely disseminate important news releases into prices, but also trigger belief divergence and generate persistent excess trading. Moreover, social interactions can amplify investors' behavioral biases and contribute to retail investors' attraction to lottery-type stocks. The authors provide additional examples to further illustrate why the roles of social networks are of particular importance to market participants. |
| Keywords | Social networks, market liquidity |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4099114 |
| Tags | Asset Pricing, Trading Volume and Market Efficiency | Financing- and Investment Decisions (Individual) | Investment Decisions (Institutional) | Manager / Firm Behavior | Propagation of Noise / Undesirable Outcomes | Social Network Structure | Theory |
Social Networks, trading, and liquidity
| Authors | Peng, Wang, Zhou |
| Year | 2022 |
| Type | Working Paper | Literature Review Paper |
| Abstract | The recent meme stock saga has drawn attention to the growing role of social networks in capital markets. In this paper, the authors summarize the latest research that uses large scale, representative, real-world social network data to study social networks' influences on trading, liquidity, and valuations of stocks. Institutional investors invest more heavily in stocks if there are strong social ties between the geographic locations of the institution's headquarters and the firm's headquarters. Further, a firm's social ties to large institutional investors reduce its cost of capital, increase its valuation, and strengthen its liquidity. Social networks help to timely disseminate important news releases into prices, but also trigger belief divergence and generate persistent excess trading. Moreover, social interactions can amplify investors' behavioral biases and contribute to retail investors' attraction to lottery-type stocks. The authors provide additional examples to further illustrate why the roles of social networks are of particular importance to market participants. |
| Keywords | social networks, market liquidity |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4099114 |
| Tags | Asset Pricing, Trading Volume and Market Efficiency | Financing- and Investment Decisions (Individual) | Investment Decisions (Institutional) | Manager / Firm Behavior | Propagation of Noise / Undesirable Outcomes | Social Network Structure | Theory |
Social finance as cultural evolution, transmission bias, and market dynamics
| Authors | Akcay, Hirshleifer |
| Journal | Proceedings of the National Academy of Sciences |
| Year | 2021 |
| Type | Published Paper | Literature Review Paper |
| Abstract | The thoughts and behaviors of financial market participants depend upon adopted cultural traits, including information signals, beliefs, strategies, and folk economic models. Financial traits compete to survive in the human population and are modified in the process of being transmitted from one agent to another. These cultural evolutionary processes shape market outcomes, which in turn feed back into the success of competing traits. This evolutionary system is studied in an emerging paradigm, social finance. In this paradigm, social transmission biases determine the evolution of financial traits in the investor population. It considers an enriched set of cultural traits, both selection on traits and mutation pressure, and market equilibrium at different frequencies. Other key ingredients of the paradigm include psychological bias, social network structure, information asymmetries, and institutional environment. |
| Keywords | Evolutionary finance, cultural evolution, social interaction, behavioral economics, social finance |
| URL | https://www.pnas.org/doi/10.1073/pnas.2015568118 |
| Tags | Asset Pricing, Trading Volume and Market Efficiency | Consumer Decisions | Evolutionary Finance | Financing- and Investment Decisions (Individual) | Propagation of Noise / Undesirable Outcomes | Social Network Structure | Social Transmission Biases | Theory |
Speculative fever: Investor contagion in the housing bubble
| Authors | Bayer, Mangum, Roberts |
| Journal | American Economic Review |
| Year | 2021 |
| Type | Published Paper |
| Abstract | Historical anecdotes abound of new investors being drawn into a booming asset market, only to suffer when the market turns. While the role of investor contagion in asset bubbles has been explored extensively in the theoretical literature, causal empirical evidence on the topic is much rarer. This paper studies the recent boom and bust in the US housing market and establishes that many novice investors entered the market as a direct result of observing investing activity of multiple forms in their own neighborhoods and that "infected" investors performed poorly relative to other investors along several dimensions. |
| URL | https://doi.org/10.1257/aer.20171611 |
| Tags | Archival Empirical | Financing- and Investment Decisions (Individual) | Propagation of Noise / Undesirable Outcomes |
Listening in on investors' thoughts and conversations
| Authors | Chen, Hwang |
| Journal | Journal of Financial Economics |
| Year | 2021 |
| Type | Published Paper |
| Abstract | A large literature in neuroscience and social psychology shows that humans are wired to be meticulous about how they are perceived by others. In this paper, we propose that impression management considerations can also end up guiding the content that investors transmit via word of mouth and inadvertently lead to the propagation of noise. We analyze server log data from one of the largest investment-related websites in the United States. Consistent with our proposition, we find that investors more frequently share articles that are more suitable for impression management despite such articles less accurately predicting returns. Additional analyses suggest that high levels of sharing can lead to overpricing. |
| Keywords | Social interactions, Social transmission bias, Asset prices |
| URL | https://www.sciencedirect.com/science/article/abs/pii/S0304405X21003810 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) | Media and Textual Analysis | Propagation of Noise / Undesirable Outcomes | Social Transmission Biases |
Social networks and market reactions to earnings news
| Authors | Hirshleifer, Peng, Wang |
| Year | 2021 |
| Type | Working Paper |
| Abstract | Using social network data from Facebook, we show that earnings announcements made by firms located in counties with higher investor social network centrality attract more attention from both retail and institutional investors. For such firms, the immediate price and volume reactions to earnings announcements are stronger, and post-announcement drift is weaker. Such firms have lower post-announcement persistence of return volatility but higher persistence in investor attention and trading volume. These effects are stronger for small firms, firms with poor analyst and media coverage, and for stocks with salient returns. Our evidence suggests a dual role of social networks-they facilitate the incorporation of public information into prices, but also trigger persistent excessive trading. |
| Keywords | Social networks, investor attention, earnings announcement, information diffusion, disagreement |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3824022 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) | Investment Decisions (Institutional) | Media and Textual Analysis | Propagation of Noise / Undesirable Outcomes | Social Network Structure |
The salience of entrepreneurship: Evidence from online business
| Authors | Huang, Lin, Liu, Manso |
| Year | 2021 |
| Type | Working Paper |
| Abstract | We study the psychological bias underlying the decision to become an entrepreneur in the online business context. Using entrepreneurs affiliated with Taobao Marketplace, the worldâÂÂs largest online shopping platform, as our sample, we find that people who observe the emergence of successful stores in their neighborhood are more likely to become online entrepreneurs. Relying on the Taobao store rating system and detailed geographical information for identification, we find that in rural areas of China, an increase in the online rating (upgrade event) of a store leads to a significant increase in the number of new stores within a 0.5-km radius. This effect increases with the magnitude of the upgrade event, decreases with physical distance from the focal store and is robust to a wide range of rigorous model specifications. However, such decisions to enter the market may be suboptimal, as entrants whose entrepreneurs are motivated by these upgrade events underperform relative to their peers in terms of sales and have a higher probability of market exit. Overall, our results are most consistent with salience theories of choice and cannot be explained by regional development or rational learning. |
| Keywords | Entrepreneurship, peer effect, salience theory, availability heuristic |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3843524 |
| Tags | Archival Empirical | Experimental / Survey-Based Empirical | Propagation of Noise / Undesirable Outcomes | Social Network Structure |
CEO social media presence and insider trading
| Authors | Li, Liang, Tang |
| Year | 2021 |
| Type | Working Paper |
| Abstract | Prior research finds that online social media usage may lower self-control and encourage indulgent behavior in laboratory subjects. We find that corporate CEOs show similar tendencies: CEOs with online social media presence are more likely to succumb to lower self-control and abuse their information advantage to profit from unethical insider trades. Specifically, CEOs' social media presence strongly predicts their insider trading activity in terms of incidence, intensity (amount and frequency), and profitability. We further find that the effect is driven by insider buys (not by sells) and is more pronounced for opportunistic buys which tend to contain more material non-public information. |
| Keywords | Insider trading, social media, CEO misconduct, business ethics |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3909886&dgcid=ejournal_htmlemail_behavioral:experimental:finance:(editor%27s:choice):ejournal_abstractlink |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Manager / Firm Behavior | Propagation of Noise / Undesirable Outcomes | Social Network Structure |
Game on: Social networks and markets
| Authors | Pedersen |
| Year | 2021 |
| Type | Working Paper |
| Abstract | I present closed-form solutions for prices, portfolios, and beliefs in a model where four types of investors trade assets over time: naive investors who learn via a social network, "fanatics" possibly spreading fake news, rational short-term investors, and long-term investors. I show that fanatic and rational views dominate over time due to echo-chamber effects, and their relative importance depends on their following by influencers. Securities markets exhibit social network spillovers, large effects of influencers and thought leaders, bubbles, bursts of high volume, price momentum, fundamental momentum, and reversal. The model sheds new light on the GameStop event, historical bubbles, and asset markets more generally. |
| Keywords | Echo chambers, networks, influencers, fake news, social media, bubbles, asset prices, belief formation |
| URL | http://dx.doi.org/10.2139/ssrn.3794616 |
| Tags | Financing- and Investment Decisions (Individual) | Propagation of Noise / Undesirable Outcomes | Social Network Structure | Theory |
Presidential address: Social transmission bias in economics and finance
| Authors | Hirshleifer |
| Journal | Journal of Finance |
| Year | 2020 |
| Type | Published Paper |
| Abstract | I discuss a new intellectual paradigm, social economics and finance--the study of the social processes that shape economic thinking and behavior. This emerging field recognizes that people observe and talk to each other. A key, underexploited building block of social economics and finance is social transmission bias: systematic directional shift in signals or ideas induced by social transactions. I use five "fables" (models) to illustrate the novelty and scope of the transmission bias approach, and offer several emergent themes. For example, social transmission bias compounds recursively, which can help explain booms, bubbles, return anomalies, and swings in economic sentiment. |
| Keywords | Social transmission bias, social economics, social finance, behavioral economics, behavioral finance, social networks, social learning, information percolation, biased percolation, epidemiology, visibility bias, self-enhancing transmission bias, simplistic thinking, memes, cultural evolution |
| URL | https://onlinelibrary.wiley.com/doi/pdf/10.1111/jofi.12906 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Evolutionary Finance | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) | Investment Decisions (Institutional) | Manager / Firm Behavior | Media and Textual Analysis | Propagation of Noise / Undesirable Outcomes | Social Transmission Biases | Theory |