Using a large sample of individual investor records over a nine-year period, we analyze survival rates, the disposition effect, and trading performance at the individual level to determine whether and how investors learn from their trading experience. We find evidence of two types of learning: some investors become better at trading with experience, while others stop trading after realizing that their ability is poor. A substantial part of overall learning by trading is explained by the second type. By ignoring investor attrition, the existing literature significantly overestimates how quickly investors become better at trading.

We show information spillovers limit the effectiveness of targeted debt relief programs. We study individuals who learn about the likelihood of debt relief from the recent experiences of workplace peers filing for bankruptcy protection. Peers granted bankruptcy can discharge debts, while peers facing dismissal lose all protections. Exploiting the random assignment of judges to bankruptcy cases, we determine that individuals with a “dismissed peer” are significantly less likely to file for bankruptcy or enter foreclosure. We highlight a novel channel relating social networks to household finances and identify additional costs of granting individual debt relief imposed on lenders.

We investigate the importance of client relationships in the financial advisory industry. We exploit firm-level variation in adoption of the Broker Protocol, which enabled clients to follow their advisers to member firms without fear of litigation. We show that advisers’ ability to maintain client relationships is a significant predictor of their employment decisions; that about 40% of client assets follow advisers when they move; and that once clients are “unlocked,” firms become less willing to fire advisers for misconduct. Firms that unlock their clients subsequently experience higher levels of misconduct and increase their fees, calling into question whether clients are better off.

We study the importance of trust in the investment advisory industry by exploiting the geographic dispersion of victims of the Madoff Ponzi scheme. Residents of communities that were exposed to the fraud subsequently withdrew assets from investment advisers and increased deposits at banks. Additionally, exposed advisers were more likely to close. Advisers who provided services that can build trust, such as financial planning advice, experienced fewer withdrawals. Our evidence suggests that the trust shock was transmitted through social networks. Taken together, our results show that trust plays a critical role in the financial intermediation industry. Received April 18, 2016; editorial decision March 8, 2017 by Editor Robin Greenwood.

We show that familiarity affects the portfolio decisions of mutual fund managers. Controlling for fund location, funds overweight stocks from their managers' home states by 12% compared with their peers. In team-managed funds, home-state overweighting is 37% larger than the fund location effect. The home-state bias is stronger if the manager is inexperienced, is resource-constrained, or spent more time in his home state. Home-state stocks do not outperform other holdings, confirming that home-state investments are not informed. The overweighting also leads to excessively risky portfolios.

We show that small innovators (i.e., small firms with recent patent grants) earn higher future returns than small non-innovators. However, we find no such innovation premium among large firms. The higher returns are driven by risk, not underreaction to announcements of recent patent grants. We find that being small and innovative interacts with financial constraints to explain the higher returns. These interactions are more important in the presence of greater information asymmetry. The higher cost of equity among small innovators has implications for their investment, growth, and capital structure decisions.

We find that socially connected fund managers have more similar holdings and trades. The overlap of funds whose managers reside in the same neighborhood is considerably higher than that of funds whose managers live in the same city but in different neighborhoods. These effects are larger when managers share a similar ethnic background, and are not explained by preferences. Valuable information is transmitted through these peer networks: a long‐short strategy composed of stocks purchased minus sold by neighboring managers delivers positive risk‐adjusted returns. Unlike prior empirical work, our tests disentangle the effects of social interactions from community effects.

Using exogenous wealth shocks stemming from the collapse of the housing market, we show that managers who experience substantial losses in their home values subsequently reduce risk in their delegated funds. The decline in fund risk comes through reductions in idiosyncratic risk and tracking error, suggesting that the behavior is likely driven by career concerns. Our paper provides evidence that idiosyncratic personal preferences affect mutual fund managers’ professional decisions and offers a methodology for testing for manager effects that is not subject to the selection critique of Fee, Hadlock, and Pierce (2013). Received March 30, 2016; editorial decision February 28, 2018 by Editor Itay Goldstein. Editor Itay Goldstein.