Link to paper: claesbackman.github.io/Papers/Perso...
Link to blog post: safe-frankfurt.de/news-latest/...

💡 Key takeaway: Personal financial advice from close connections improves investment outcomes, highlighting an important distinction from online peer effects in finance.

A personal relationship means that you probably feel responsible if a risky recommendation goes wrong. This aligns perfectly with what we find in the data: advice-givers emphasize expertise and trustworthiness, and their recommendations lead to better portfolio outcomes.

Our results resonate with me personally, because it's the type of financial advice I would always give when my friends ask. When someone you care about asks for investment advice, you're motivated to recommend sound, diversified strategies.

🔍 Unlike advice shared on anonymous social media platforms, personal financial advice is based on trust and expertise rather than past returns. Those who provide advice are positively selected on experience and financial knowledge, and they internalize the outcomes of their recommendations.

📊 We study how financial advice from family and friends affects portfolio outcomes. Using unique brokerage data and survey evidence, we find that personal financial advice is widespread and leads to better portfolio quality—more diversification and a preference for funds over single stocks.

Eller hur!

Tack!

These two mechanisms have different implications for regulation, and we are hoping to explore the exact mechanism more in detail in some follow-up work.

Two broad mechanism for why amortization payments are costly are i) monthly payment targeting, where households focus on a specific monthly mortgage payment rather than minimizing the lifetime cost of the loan and ii) a desire to save in other assets.

Second, we show in the model that the amortization requirement will have a significant impact on household wealth accumulation, matching some recent empirical evidence from the Netherlands.

We use model simulations to show that introducing interest-only mortgages increase aggregate debt and lifetime interest expenses, especially if amortization payments are viewed as a cost. Importantly, this result applies to wealthy borrowers far from borrowing constraints.

Two important aggregate implications: First, financial innovation in the 1990s and early 2000s generated a wide variety of new mortgage products with lower amortization payments.

We show that households reduce their borrowing in response to higher amortization payments (see figure), which we attribute to households viewing amortization payments as a cost. We use lifecycle model to explore the mechanisms and to think about the aggregate effects.

The paper studies how household borrowing responds to the amortization requirement, a Swedish macroprudential policy mandating higher repayments of mortgage debt. You can read a brief non-technical summary here: safe-frankfurt.de/news-latest/...

Tilykke!

Thanks for sharing, looks interesting! Out of curiosity, how did you make the website?

It’s certainly true that theory comes after empirics in a lot of cases. I think it’s the pure scale that’s different though.