Working Papers

This paper constructs dynamic networks of institutional funds based on investors' revealed preferences, captured through co-viewership on a leading asset management platform. Shocks to peer funds-identified solely through shared investor attention-predict subsequent returns and flows of focal funds, above and beyond the effects of overlapping stock holdings, style similarity, and textual similarity in fund prospectuses. Consistent with limited investor attention, these spillover effects are sluggish and amplified for connections that investors tend to overlook. Fund managers actively respond to negative spillovers by rebalancing portfolios away from attention-linked peers. In contrast, idiosyncratic peer shocks-such as key manager departures-generate positive inflows to attention-linked funds. The findings reveal an investor attention-based channel of shock propagation across institutional funds, with important implications for diversification across multiple fund managers and the stability of the sector.

During the COVID-19 crisis, bond mutual funds experienced significant outflows that disrupted debt markets. We show that "funds of funds"-mutual funds that invest in other mutual funds played a surprisingly large role in this episode. Despite experiencing minimal redemptions themselves, funds of funds rebalanced their portfolios mechanically in response to equity market losses, selling approximately $70-80 billion of bond funds and purchasing equity funds. This behavior accounted for 25-30 percent of all bond fund outflows in March 2020. Our findings highlight how portfolio rebalancing by institutional investors can transmit shocks across markets and amplify financial fragility.

Regulators around the world endeavor to reduce search costs and enhance financial education among retail investors. In line with this goal, Chinese regulators recently began allowing mutual funds to use social media livestreams to deliver video presentations and interact with viewers. We analyze over 27,000 livestreams to investigate whether they accomplish regulators' intended goal of improving investment decisions. Our findings indicate that livestreams drive significant inflows, even within minutes of their start times. However, contrary to their educational objective, livestreams exacerbate retail investors' tendencies to chase past returns and predict sharp declines in subsequent fund performance. Investors who buy in response to livestreams would earn higher returns by investing in index funds or even holding cash. Further analyses using deep learning algorithms find that livestreams drive greater inflows when speakers are more physically attractive, use more positive language, and sound more excited. We conclude that livestreams primarily function as persuasive advertising and that regulators should be wary of educational efforts led by sellers of consumer financial products. We also conclude that prior findings about the benefits of firms' social media use in equity markets do not extend to financial product markets in our setting.

This paper examines the impact of a digital platform's transmission of financialknowledge on users' stock market participation and investment performance.Leveraging a Chinese platform's randomly distributed prompts as an instrument,we demonstrate that access to financial information increases stock investment,enhances portfolio diversification, and improves risk-adjusted returns, even amongolder, less educated and less affluent users. Although initial responses to the promptsare modest, sustained exposure overcomes inertia and drives considerable engagement.Digitalization thus holds promises for democratizing finance by providingscalable, low-cost financial education that helps individuals make more informedinvestment decisions.

Using unique account-level data from a leading Chinese fintech platform, we investigate how financial influencers, the key information intermediaries in social finance, attract followers through a process of social transmission bias. We document a robust performance-following pattern wherein retail investors overextrapolate influencers' past returns rather than rational learning in the social network from their past performance. The transmission bias is amplified by two mechanisms: (1) influencers' active social engagement and (2) their index fund-heavy portfolios. Evidence further reveals influencers' self-enhancing reporting through selective performance disclosure. Crucially, the dynamics ultimately increase risk exposure and impair returns for follower investors.

We examine whether investors' commitment to socially responsible investment principles influence their investee firms' public disclosure of environmental, social, and governance (ESG) information. We find that following institutional investors' public commitment to the United Nations Principles for Responsible Investment (PRI), investees' ESG disclosure in U.S. Securities and Exchange Commission reports increases. We identify two mechanisms through which PRI investors influence investee firms' ESG disclosure: submitting shareholder proposals that request enhanced sustainability disclosure and engaging directly with investee firms to encourage greater ESG disclosure. Our conclusions are robust to considering: 1) Alternative measures of ESG disclosure; 2) The level of institutional ownership of the firm by PRI investors before they join the PRI initiative and by other investors; 3) The ESG performance of the investee firm, using alternative ESG score providers; 4) The simultaneous estimation of institutional investment decision, firm ESG performance, and firm ESG disclosure; and, 5) An event triggering institutional investor demand for environmental information - the BP Deepwater Horizon oil spill. We also find that the improvement in firms' ESG disclosure is attributable primarily to PRI institutional investors from Europe and is not driven only by large influential institutional investors. Overall, our analyses suggest that investors' public commitment to social responsibility plays a crucial role in enhancing investee firms' public disclosure of ESG information.

People often cite family and friends as important sources of financial advice. We study the impact of this social financial advice by using comprehensive administrative data on social networks and an identification strategy leveraging job switches to financial advisor roles. Gaining access to social financial advice significantly increases stock market participation. This effect declines in social distance, persists across socioeconomic groups, is absent for safe assets, and does not extend to other finance professionals. Our results are consistent with complementarity of investment expertise with client-facing skills being essential for advisors to successfully convert their social connections into investors.

We experimentally examine the channels underlying peer effects in financial markets. We hypothesize that individuals are uncertain about how to process informationregarding financial markets and thus look among their peers for someone who is more capable of processing the information - an expert. Our experimental evidence supportsthis hypothesis: Peers with higher relative expertise are followed more strongly. In our experiments, peers do not possess additional information to ensure that our results aredriven by the ability to process common information. We therefore introduce a new channel to the peer effects literature - information processing.

We analyze a unique hybrid robo-advisory setting where portfolio management is automated, but clients are quasi-randomly assigned to human financial advisors who deliver all remaining wealth management services, including behavioral coaching and relationship support. We show that advisors of different types cause variation in client retention, especially during market downturns. To interpret these effects, we estimate a structural model in which advisors influence both investor learning about the automated solution and the perceived utility of remaining enrolled, independent of performance. Effective human advisors generate significant surplus for both clients and the firm through these informational and behavioral channels.

We provide evidence for a new propagation mechanism of wealth inequality and mobility. Using unique administrative data and a quasi-field experiment of exogenous assignment, we find that educated entrants, faced with greater local wealth inequality and salient cases of wealth mobility, take financial, real, and self-employment risks and reach higher positions in the wealth distribution, while the less educated do not. This is driven by poorer communities with more salient cases of wealth mobility, consistent with peer exposure rather than supply-side effects. We find no evidence for other channels, such as obtaining higher-paying more secure jobs, relocating, or reducing debt.

This paper tests how people's moral values influence their views of debt contracts. We ask participants to make decisions about debt contracts in different hypothetical situations (vignettes). We separately measure their moral values using the Moral Foundations Questionnaire (Graham et al., 2009). We have three main sets of findings. First, differences in moral values strongly explain the cross-section of participants' debt decisions. Participants with more conservative values show more support for credit score-based loan pricing, stricter forms of collateral, and tougher bankruptcy resolution. Second, when we randomly change the economic costs and benefits of debt within our vignettes, we find that participants change their answers in the direction predicted by economic theory. Third, participants' beliefs of the functioning of the credit market strongly correlate with their moral values. Participants with conservative values are more likely to believe that strict enforcement and risk-based loan pricing provide incentives and are economically efficient. More liberal participants believe that insurance against unlucky shocks are important. Consistent with moral values being distinct from Bayesian beliefs, financial literacy does not attenuate moral values in shaping beliefs about what is economically efficient.

Using friendship data from Facebook, we find that among three aspects of social capital, Economic Connectedness - the fraction of one's social network with high income, has the strongest and most robust relationship with stock market and saving participation. One standard-deviation greater Economic Connectedness is associated with 10.6% greater stock market participation and 9.2% greater saving participation. Evidence from non-local friendships supports a causal link between household financial behavior and the income of one's friends. Our results indicate that the effect of Economic Connectedness on participation derives from opportunities to interact with high-SES individuals rather than from class-based friending propensities.