Advertisement

Peer Effects Among Teachers: A Study of Retirement Investments

  • James FarrellEmail author
Original Paper
  • 1 Downloads

Abstract

Using a unique matched-panel dataset that combines detailed demographic information from the Florida Department of Education’s annual survey of school districts with investment information from the Florida State Board of Administration for 2002–2009, this paper looks for the presence of peer effects among Florida Defined Contribution plan participants at the school level. Overall, the regression results suggest a small, but significant peer effect on asset allocations and activity level. A 1 standard deviation change in initial peer equity yielded a 0.04 standard deviation change in equity reallocation. This is in comparison to a 1 standard deviation change in the individual’s own initial equity allocation, which would yield a 0.16 standard deviation change in equity allocation. For activity level, a 5.2% change in peer activity level increased the likelihood of a participant being active by 1.8%. The findings are reinforced by similar analysis using false peer groups. These findings suggest the presence of a social multiplier for coworker investment decisions.

Keywords

Peer effects Investment allocation Investor behavior 

Notes

Funding

James Farrell was employed by the State Board of Administration from 2008 to 2010, no additional funding was provided for this paper.

Conflict of interest

James Farrell has no other conflicts of interest.

References

  1. Agnew, J. (2006). Do behavioral biases vary across individuals? Evidence from individual level 401(k) data. Journal of Financial and Quantitative Analysis, 41(04), 939–962.  https://doi.org/10.1017/S0022109000002702.CrossRefGoogle Scholar
  2. Bajtelsmit, V. L., & Bernasek, A. (1996). Why do women invest differently than men? Journal of Financial Counseling and Planning, 7, 1.  https://doi.org/10.2139/ssrn.2238.Google Scholar
  3. Bajtelsmit, V. L., & VanDerhei, J. L. (1997). Risk aversion and pension investment choices. In M. S. Gordon, O. S. Mitchell & M. M. Twinney (Eds.), Positioning pensions for the twenty-first century (pp. 45–66). Philadelphia: University of Pennsylvania Press.Google Scholar
  4. Bertrand, M., Luttmer, E. F., & Mullainathan, S. (2000). Network effects and welfare cultures. The Quarterly Journal of Economics.  https://doi.org/10.1162/003355300554971.Google Scholar
  5. Bikhchandani, S., & Sharma, S. (2000). Herd behavior in financial markets. IMF Staff Papers, 47(3), 279–310.  https://doi.org/10.2307/3867650.Google Scholar
  6. Brown, J. R., Ivković, Z., Smith, P. A., & Weisbenner, S. (2008). Neighbors matter: Causal community effects and stock market participation. The Journal of Finance, 63(3), 1509–1531.  https://doi.org/10.1111/j.1540-6261.2008.01364.x.CrossRefGoogle Scholar
  7. Brown, K. M., & Laschever, R. A. (2012). When they’re sisty-four: Peer effects and the timing of retirement. American Economic Journal: Applied Economics, 4(3), 90–115.  https://doi.org/10.1257/app.4.3.90.Google Scholar
  8. Burke, M. A., & Sass, T. R. (2013). Classroom peer effects and student achievement. Journal of Labor Economics, 31(1), 51–82.  https://doi.org/10.1086/666653.CrossRefGoogle Scholar
  9. Calvet, L. E., Campbell, J. Y., & Sodini, P. (2009). Measuring the financial sophistication of households. American Economic Review, 99(2), 393–398.  https://doi.org/10.1257/aer.99.2.393.CrossRefGoogle Scholar
  10. Carrell, S. E., Fullerton, R. L., & West, J. E. (2009). Does your cohort matter? Measuring peer effects in college. Journal of Labor Economics, 27(3), 439–464.  https://doi.org/10.1086/600143.CrossRefGoogle Scholar
  11. Chingos, M. M., & West, M. M. (2013). When teachers choose pension plans: The Florida story. The Thomas Fordham Institute. Available online at http://edex.s3-us-west-2.amazonaws.com/publication/pdfs/20130219-When-Teachers-Choose-Pension-Plans-FINAL_6_0.pdf.
  12. Ding, W., & Lehrer, S. F. (2007). Do peers affect student achievement in China’s secondary schools? The Review of Economics and Statistics.  https://doi.org/10.1162/rest.89.2.300.Google Scholar
  13. Duflo, E., & Saez, E. (2002). Participation and Investment decisions in a retirement plan: The influence of colleagues’ choices. Journal of Public Economics.  https://doi.org/10.1016/S0047-2727(01)00098-6.Google Scholar
  14. Duflo, E., & Saez, E. (2003). The role of information and social interactions in retirement plan decisions: Evidence from a randomized experiment. The Quarterly Journal of Economics, 118(3), 815–842.  https://doi.org/10.1162/00335530360698432.CrossRefGoogle Scholar
  15. Evans, W. N., Oates, W. E., & Schwab, R. M. (1992). Measuring peer group effects: A study of teenage behavior. The Journal of Political Economy.  https://doi.org/10.1086/261848.Google Scholar
  16. Falk, A., & Ichino, A. (2006). Clean evidence on peer effects. Journal of Labor Economics.  https://doi.org/10.1086/497818.Google Scholar
  17. Farrell, J. (2011). Demographics of risky investing. Research in Business and Economics Journal. http://www.aabri.com/manuscripts/FSC-11-2.pdf.
  18. Farrell, J., & Bythewood, C. (2011). The financial crisis: Reactions of investors across demographic groups. The Journal of Business and Finance Research, 3(1), 23–31. http://docs.hamptonu.edu/student/4556-v3n1_20130812132056.pdf.
  19. Guiso, L., Sapienza, P., & Zingales, L. (2004). The role of social capital in financial development. American Economic Review, 94(3), 526–556.  https://doi.org/10.1257/0002828041464498.CrossRefGoogle Scholar
  20. Guiso, L., Sapienza, P., & Zingales, L. (2006). Does culture affect economic outcomes. Journal of Economics Perspectives.  https://doi.org/10.1257/jep.20.2.23.Google Scholar
  21. Guryan, J., Kroft, K., & Notowidigdo, M. (2009). Peer effects in the workplace: Evidence from random groupings in professional golf tournaments. American Economic Journal: Applied Economics, 1(4), 34–68.  https://doi.org/10.1257/app.1.4.34.Google Scholar
  22. Hanushek, E. A., Kain, J. F., Markman, J. M., & Rivkin, S. G. (2003). Does peer ability affect student achievement? Journal of Applied Econometrics.  https://doi.org/10.1002/jae.741.Google Scholar
  23. Hinz, R. P., McCarthy, D. D., & Turner, J. A. (1997). Are women conservative investors? Gender differences in participant-directed pension investments. In M. S. Gordon, O. S. Mitchell & M. M. Twinney (Eds.), Positioning pensions for the twenty-first century (pp. 91–103). Philadelphia: University of Pennsylvania Press.Google Scholar
  24. Hoxby, C. (2000). Peer effects in the classroom: Learning from gender and race variation. (No. w7867). National Bureau of Economic Research.  https://doi.org/10.3386/w7867.Google Scholar
  25. Hoxby, C. M., & Weingarth, G. (2005). Taking race out of the equation: School reassignments and the structure of peer effects. (No. 7867). Working Paper. https://www.pausd.org/sites/default/files/pdf-faqs/attachments/TakingRaceOutOfTheEquation.pdf.
  26. Manski, C. F. (1993). Identification of endogenous social effects: The reflection problem. Review of Economic Studies.  https://doi.org/10.2307/2298123.Google Scholar
  27. Moffitt, R. A. (2001). Policy interventions, low-level equilibria, and social interactions. Social Dynamics, 4(45–82), 6–17.Google Scholar
  28. Ostrovsky-Berman, E., & Litwin, H. (2018). Social network and financial risk tolerance among investors nearing and during retirement. Journal of Family and Economic Issues.  https://doi.org/10.1007/s10834-018-9592-5.Google Scholar
  29. Sacerdote, B. (2001). Peer effects with random assignment: Results for Dartmouth roommates. The Quarterly Journal of Economics.  https://doi.org/10.1162/00335530151144131.Google Scholar
  30. State Board of Administration. (2008). Quick guide: Florida retirement system investment plan. Tallahassee: State Board of Administration.Google Scholar
  31. State Board of Administration. (2010). The Florida retirement system annual report: July 1, 2009 - June 30, 2010. Tallahassee: State Board of Administration.Google Scholar
  32. Sunden, A. E., & Surette, B. J. (1998). Gender differences in the allocation of assets in retirement savings plans. The American Economic Review, 207–211. https://www.jstor.org/stable/116920.
  33. Zabel, J. E. (2008). The impact of peer effects on student outcomes in New York City Public Schools. Education Finance and Policy.  https://doi.org/10.1162/edfp.2008.3.2.197.Google Scholar

Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  1. 1.Florida Southern CollegeLakelandUSA

Personalised recommendations