This paper analyzes explicit buy recommendations for stocks published by German Personal Finance Magazines from 1995 to 2003. These recommendations earn significant abnormal returns of 2.58% within the five days around the publication day. Both the price-pressure hypothesis and the information hypothesis can be confirmed by our data. The price-pressure effect is most evident for small stocks and glamour stocks. However, whereas the initial price reaction to small stocks is additionally driven by permanent information value, this does not hold true for glamour stocks. In contrast, value stocks are associated with high cumulative abnormal returns that are solely driven by information value.

Homophily—individuals’ affinity for others like them—is a powerful principle that governs whose opinions people attend to. Using nearly 2, 400 advisory meetings, we find that homophily has a significant positive impact on the likelihood of following financial advice. The increased likelihood of following stems from homophily on gender and age for male clients and from sameness on marital and parental status for female advisees. Moreover, the homophily effect is mitigated by reduced information asymmetry between client and advisor and a long-term relationship with the bank. Our results suggest that client-advisor matching increases individuals’ propensity to follow financial advice. Received June 21, 2017; editorial decision June 7, 2018 by Editor Philip Strahan.