Factors determining individual investors’ (over)trading and risk-taking behavior are difficult to establish. Using panel data, we compare the behavior of individual investors with different exposures to non-informative shocks within their local environment. We use ZIP codes to match investors with nearby bankruptcies of mostly small firms. Results show that investors increase turnover and decrease risk taking, and that trading responses are strongly related to the proximity and recency of local bankruptcies. Results are similar when we limit the analysis to investors least likely to be personally affected by bankruptcies.
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