Peer performance can influence the adoption of financial innovations and investment styles. We present evidence of this type of social influence: recent stock returns that local peers experience affect an individual's stock market entry decision, particularly in areas with better opportunities for social learning. The likelihood of entry does not decrease as returns fall below zero, consistent with people not talking about decisions that have produced inferior outcomes. Market returns, media coverage, local stocks, omitted local variables, short sales constraints, and stock purchases within households do not seem to explain these results.

ABSTRACT We find a strong positive link between past IPO returns and future subscriptions at the investor level in Finland. Our setting allows us to trace this effect to the returns personally experienced by investors; the effect is not explained by patterns related to the IPO cycle, or wealth effects. This behavior is consistent with reinforcement learning, where personally experienced outcomes are overweighted compared to rational Bayesian learning. The results provide a microfoundation for the argument that investor sentiment drives IPO demand. The paper also contributes to understanding how popular investment styles develop, and has implications for the marketing of financial products.

[This article shows that individuals' product market choices influence their investment decisions. Using microdata from the brokerage and automotive industries, we find a strong positive relation between customer relationship, ownership of a company, and size of the ownership stake. Investors are also more likely to purchase and less likely to sell shares of companies they frequent as customers. These effects are stronger for individuals with longer customer relationships. A merger-based natural experiment supports a causal interpretation of our results. We also find evidence of causality in the other direction: inheritances and gifts have an effect on individuals' patronage decisions. A setup in which customer-investors regard stocks as consumption goods, not just as investments, seems to best explain our results.]

[Twenty countries around the world have used $27 billion in incentives such as bonus shares and discounts to attract retail investors to participate in privatizations and to discourage them from flipping their shares. Our results show that incentives have performed well, increasing retail investor participation much more cost effectively than underpricing. Flipping is not only much reduced in the short term but remains cumulatively at least 15% lower after 1000 trading days. The expiration of bonus share plans is associated with a 6-day abnormal return of -1.0% and a long-term increase in trading volume.]

This study documents patterns of investor behavior around Finnish rights issues. We find that shareholders of issuing companies lost at least €9.9 million in aggregate from 1995 to 2002 by exercising rights too early, selling rights in the open market below their intrinsic value, or leaving rights unexercised. At the investor level, the losses are modest. For example, the median household investor suffered a loss of €135 from not exercising or selling the rights. Investors with small portfolios, inactive trading history, those who know neither of the official languages in Finland, or who are living abroad leave money on the table the most.

We show that investors tend to hold the same securities as their parents. This intergenerational correlation is stronger for mothers and family members who are more likely to communicate with each other. An instrumental variables estimation and a natural experiment suggest that the correlation reflects social influence. This influence runs not only from parents to children, but also vice versa. The resulting holdings of identical securities increase intergenerational correlations in portfolio choice, exacerbate wealth inequality, and amplify the consequences of behavioral biases.

What makes a successful CEO? We combine a near-exhaustive sample of male CEOs from Swedish companies with data on their cognitive and noncognitive ability and height at age 18. CEOs differ from other high-skill professions most in noncognitive ability. The median large-company CEO belongs to the top 5% of the population in the combination of the three traits. The traits have a monotonic and close to linear relation with CEO pay, but their correlations with pay, firm size, and CEO fixed effects in firm policies are relatively low. Traits appear necessary but not sufficient for making it to the top.

This article shows that individuals' product market choices influence their investment decisions. Using microdata from the brokerage and automotive industries, we find a strong positive relation between customer relationship, ownership of a company, and size of the ownership stake. Investors are also more likely to purchase and less likely to sell shares of companies they frequent as customers. These effects are stronger for individuals with longer customer relationships. A merger-based natural experiment supports a causal interpretation of our results. We also find evidence of causality in the other direction: inheritances and gifts have an effect on individuals' patronage decisions. A setup in which customer-investors regard stocks as consumption goods, not just as investments, seems to best explain our results. (JEL G11, G24, D83) The Author 2012. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: [email protected]., Oxford University Press.

Twenty countries around the world have used $27 billion in incentives such as bonus shares and discounts to attract retail investors to participate in privatizations and to discourage them from flipping their shares. Our results show that incentives have performed well, increasing retail investor participation much more cost effectively than underpricing. Flipping is not only much reduced in the short term but remains cumulatively at least 15% lower after 1000 trading days. The expiration of bonus share plans is associated with a 6-day abnormal return of –1.0% and a long-term increase in trading volume.

ABSTRACT We trace the impact of formative experiences on portfolio choice. Plausibly exogenous variation in workers’ exposure to a depression allows us to identify the effects and a new estimation approach makes addressing wealth and income effects possible. We find that adversely affected workers are less likely to invest in risky assets. This result is robust to a number of control variables and it holds for individuals whose income, employment, and wealth were unaffected. The effects travel through social networks: individuals whose neighbors and family members experienced adverse circumstances also avoid risky investments.