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Active Trading and (Poor) Performance : The Social Transmission Channel (Inglês)

Active investors often generate inferior returns. Social interactions might exacerbate this tendency, but the causal link between peer effects and active trading is difficult to identify empirically. This paper exploits the exogenous assignment of students to classrooms in a large-scale financial education initiative to evaluate the transmission of trading strategies among individual investors. The paper shows that students assigned to groups where classmates have more trading background, are more likely to start trading after completing the program. These social effects are stronger when peers have experienced favorable outcomes. The paper documents a negative consequence from social interactions: students that registered for courses where peer returns are large, generate lower trading profits than other investors. The evidence is consistent with social learning under biased information -- people share their most successful experiences, encouraging stock trading among uninformed investors. The results shed light on the role of selective communication in the transmission and adoption of ideas, and more importantly, in the behavior of people expose to biased information. The findings show that social learning can lead to misguided decisions when peer choices are not accurately observed by members of the social network.


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    Escobar Pradilla,Laura Manuela, Pedraza Morales,Alvaro Enrique

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    Documento de trabalho sobre pesquisa de políticas

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    Active Trading and (Poor) Performance : The Social Transmission Channel

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    stock market; development research group; master of business administration program; new investor; dependent variable in equation; market entry; stock trading; peer effects; market participation; financial education program; active trading; social interaction; financial education initiative; number of shares; short-term interest rate; foreign portfolio investment; recent trade performance; performance of student; hours of instruction; financial training program; degree of confidence; student per classroom; chamber of commerce; low financial literacy; participation among women; value of trade; buying on margin; cost of tuition; stock market price; potential investor; marginal effect; positive outcome; stock purchase; positive return; social learning; high volatility; stock price; fixed effect; investment choice; standard deviation; stock transaction; participation rate; individual investor; private information; deposit rate; trading history; information transmission; new entrant; stock trade; trading strategy; learning model; first year; classroom setting; informal conversation; stock exchange; excess return; low trade; age range; market entrant; social network; equity trading; stock portfolio; high share; theoretical model; uninformed investor; idiosyncratic volatility; average returns; domestic stock; average share; holding period; skilled individual; mutual fund; empirical evidence; trading activity; sample period; average trade; financial decision; market signal; expected value; binary choice; risky asset; registration fee; cumulative distribution; entrepreneurial activity; managerial decision; investment opportunities; social environment; asset price; international market; passive investment; empirical literature; confirmation bias; professional network; risk neutral; zip code; information environment; social group; important policy; investment performance; baseline model; data sample; risk exposure; empirical specification; portfolio value; gross return; equity holding; portfolio return; teaching experience; empirical model; empirical exercise; market volatility; potential investment; market characteristic; advanced curriculum; linear model; portfolio datum; bottom quartile; standard error; independent variable; old student; risk aversion; individual risk; portfolio volatility; trading opportunities; skill bias; market participant; graduate school; interest issue; investment cost; average performance; confidence interval; commitment device; trade intensity; experimental work; information center; derivatives trading; high profitability; trading cost; short sale; summary statistic; female student; equity trade; transaction price; transaction cost; financial asset; Investment strategies; response rate; graduate education; news release; job opportunity; educational background; social effect; social influence; Research Support; causal link; job opportunities; portfolio choice; economic model; social setting; aggregate shock; survey respondent; transmission channel; natural experiment; investment horizon; development policy; information dissemination; peer group; sophisticated investor; low performance; open access; return increase; student participation; age restriction



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