[We use unique administrative data and a quasi-field experiment of exogenous allocation in Sweden to estimate medium-and longer-run effects of peoples’exposure to financially literate neighbors on their financial behavior. We contribute evidence of (1) a causal impact of exposure and of a social multiplier of financial knowledge and (2) unfavorable distributional aspects of externalities. Exposure promotes saving in private retirement accounts and stockholding, especially when neighbors have economics or business education, but only for educated households and for substantial interaction possibilities. Findings point to a transfer of knowledge rather than mere imitation or effects through labor, education, or mobility channels.]

Do negative housing shocks lead to persistent changes in household attitudes toward housing and homeownership? We use the residential destruction of Germany during World War II (WWII) as a quasi-experiment and exploit the reasonably exogenous region-by-cohort variation in destruction exposure. We find that WWII-experiencing cohorts from high destruction regions are significantly less likely to be homeowners decades later, controlling for regional differences and household characteristics. Underlying this effect are changes in household attitudes toward homeownership that also extend to preferences for housing consumption, with little or no support for risk preferences, income and wealth effects, or supply-side factors.

We document significant negative effects of exposure to increased automation at work on household wealth accumulation. Beyond the income and savings channels, we uncover a novel mechanism contributing to the negative wealth effects of automation that arises through the endogenous optimal portfolio decisions of households. We show that households rebalance their financial wealth away from the stock market in response to increased human capital risk induced by pervasive automation, thereby attaining lower wealth levels and relative positions in the wealth distribution. Our evidence suggests that the portfolio channel amplifies the inequality-enhancing effects of increased automation.

We use unique administrative data and a quasi-field experiment of exogenous allocation in Sweden to estimate medium- and longer-run effects of peoples’ exposure to financially literate neighbors on their financial behavior. We contribute evidence of (1) a causal impact of exposure and of a social multiplier of financial knowledge and (2) unfavorable distributional aspects of externalities. Exposure promotes saving in private retirement accounts and stockholding, especially when neighbors have economics or business education, but only for educated households and for substantial interaction possibilities. Findings point to a transfer of knowledge rather than mere imitation or effects through labor, education, or mobility channels. Received October 25, 2017; editorial decision December 24, 2018 by Editor Lauren Cohen.

Contrary to the theoretical principle that higher risk is compensated with higher expected return, the literature shows that low-risk stocks outperform high-risk stocks. Using a large-scale household dataset, we provide an explanation for this puzzling result that the anomalous negative risk-return relation is only confined to those stocks predominantly held by rich households, whereas the anomaly disappears for stocks held by non-rich households and institutional investors. We find that social status concern of rich households and the induced lottery preference explain wealthy investors’ demand for high-risk stocks, leading to overpricing and low future returns for such stocks.

We study the conflict of interest that arises when a universal bank conducts proprietary trading alongside its retail banking services. Our data set contains the stock holdings of every German bank and those of their corresponding retail clients. We investigate (i) whether banks sell stocks from their proprietary portfolios to their retail customers, (ii) whether those stocks subsequently underperform, and (iii) whether retail customers of banks engaging in proprietary trading earn lower portfolio returns than their peers. We present affirmative evidence for all three questions and conclude that proprietary trading can, in fact, be detrimental to retail investors.