2020 Hillcrest Best Paper Award in Behavioral Finance

Birds of a Feather: The Impact of Homophily on the Propensity to Follow Financial Advice

Oscar Stolper (University of Marburg, Germany)

Andreas Walter (University of Giessen, Germany)

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 advises. 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.

This paper is located on The Review of Financial Studies journal page.