Essays on Peer Effects in Finance

Ville Rantala

Research output: ThesisDoctoral ThesisCollection of Articles


When people make financial decisions, they are often influenced by others around them. The four essays of this dissertation study peer effects in financial decision-making in the areas of corporate finance and household finance. Social interaction effects between individual investors and decision-makers have attracted interest from financial economists, but there is little previous evidence on their microfoundations. The first essay develops a new method for defining peer firms based on joint analyst coverage. The findings suggest that common analysts between firms offer a simple, but powerful, method for identifying closely related firms. The second essay uses stock splits to study peer effects in corporate decision-making. The results indicate that a firm is significantly more likely to execute a stock split if one of its peer firms has recently done so, and splitting probability is also increasing in the announcement returns of peer splits. The third essay studies how word-of-mouth investment information spreads among investors using data from a large Finnish Ponzi scheme called Wincapita. Investors could join the scheme only if an existing investor invited them, and the inviter-invitee relationships allow me to observe how a socially transmitted investment idea spreads from one person to the next through social interaction. The main finding is that the spreading of information follows a so-called scale-free network structure. The network structure explains why word-of-mouth information can spread rapidly even if the average investor shares it with few others. The fourth essay studies how the personal characteristics of the inviters in the Ponzi scheme are related to the invested amounts, and finds evidence of "keeping up with the Joneses" behavior based on relative income differences. This dissertation adds to the knowledge on peer effects in financial decision-making by developing new methodology, utilizing a setting where the identification of corporate peer effects is possible, and using novel data on the spreading of word-of-mouth information. The results contribute to the literature on the economics of social interaction effects and they also provide unique information about the functioning of Ponzi schemes at the level of individual people.
Translated title of the contributionEssays on Peer Effects in Finance
Original languageEnglish
QualificationDoctor's degree
Awarding Institution
  • Aalto University
  • Kaustia, Markku, Supervising Professor
Print ISBNs978-952-60-6770-4
Publication statusPublished - 2016
MoE publication typeG5 Doctoral dissertation (article)


  • behavioral finance
  • peer effect
  • social network
  • Ponzi scheme


Dive into the research topics of 'Essays on Peer Effects in Finance'. Together they form a unique fingerprint.

Cite this