Working Paper: CEPR ID: DP14840
Authors: Luc Arrondel; Hector Calvo Pardo; Chryssi Giannitsarou; Michael Haliassos
Abstract: Household finances are confidential and discussions are limited to a subset of peers. We collect novel representative survey data to examine separately whether interac- tions with inner and outer social circles influence return perceptions, expectations, and exposure to a widely known financial instrument in a developed economy with multiple information sources. We find that a respondent’s connectedness, proxied by perceived prevalence of information or participation in the small financial circle, improves expectation accuracy indirectly, through boosting accuracy of perceived past returns; and influences stock participation and exposure not only by influencing expectations, but also directly.
Keywords: Information Networks; Social Interactions; Subjective Expectations; Peer Effects; Household Portfolio Choice
JEL Codes: G5; G11; D12; D83; D84
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Connectedness to inner financial circle (F65) | Accuracy of return expectations (G17) |
| Accuracy of return expectations (G17) | Stock market participation (G19) |
| Connectedness to informed peers (C92) | Stock market participation (G19) |
| Connectedness to informed peers (C92) | Risky portfolio share (G11) |
| Mindless imitation from outer social circle (C92) | Expectations and behaviors (D84) |