Individual investors will gamble like crazy when they’re falling behind their friends, but they don't play it safe when they’re winning.
SSRN · March 17, 2026 · 6307978
The Takeaway
The study shows that retail investors use market benchmarks as an 'external reference point' for social status. This 'FOMO Economics' leads to asymmetric behavior: if the market is up and they aren't, they buy riskier, high-volatility stocks to catch up, rather than being more cautious.
From the abstract
Individual investors are sensitive to peer performance and particularly dislike "falling behind." We use unique granular data on transactions and holdings of retail investors to study portfolio adjustment in response to relative performance of their portfolios. We show that investor behavior is consistent with preferences over future wealth that are S-shaped around an external reference point provided by a salient market benchmark: if their portfolio lags the index they tend to increase the risk