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Social Interaction and Stock-Market Participation

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Author Info
Harrison Hong
Jeffrey D. Kubik
Jeremy C. Stein
Abstract

We propose that stock-market participation is influenced by social interaction. In our model, any given "social" investor finds the market more attractive when more of his peers participate. We test this theory using data from the Health and Retirement Study, and find that social households-those who interact with their neighbors, or attend church-are substantially more likely to invest in the market than non-social households, controlling for wealth, race, education, and risk tolerance. Moreover, consistent with a peer-effects story, the impact of sociability is stronger in states where stock-market participation rates are higher. Copyright 2004 by The American Finance Association.

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Article provided by American Finance Association in its journal The Journal of Finance.

Volume (Year): 59 (2004)
Issue (Month): 1 (02)
Pages: 137-163
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Handle: RePEc:bla:jfinan:v:59:y:2004:i:1:p:137-163

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  1. Fabio Sabatini, 2005. "Social Capital, Public Spending and the Quality of Economic Development," Others 0506014, EconWPA. [Downloadable!]
  2. Lauren Cohen & Andrea Frazzini & Christopher Malloy, 2007. "The Small World of Investing: Board Connections and Mutual Fund Returns," NBER Working Papers 13121, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Gomes, Orlando, 2006. "Can social interaction contribute to explain business cycles?," MPRA Paper 2848, University Library of Munich, Germany. [Downloadable!]
  4. Dimitris Christelis & Dimitris Georgarakos & Michael Haliassos, 2009. "Stockholding: From Participation to Location and to Participation Spillovers," CFS Working Paper Series 2009/02, Center for Financial Studies. [Downloadable!]
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  5. Dimitrios Christelis & Dimitris Georgarakos, 2009. "Household Economic Decisions under the Shadow of Terrorism," CSEF Working Papers 213, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy. [Downloadable!]
  6. Dimitrios Christelis & Tullio Jappelli & Mario Padula, 2006. "Cognitive Abilities and Portfolio Choice," CSEF Working Papers 157, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy. [Downloadable!]
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  7. Jeffrey R. Brown & Zoran Ivkovich & Paul A. Smith & Scott Weisbenner, 2004. "The Geography of Stock Market Participation: The Influence of Communities and Local Firms," NBER Working Papers 10235, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Annamaria Lusardi, 2008. "Household Saving Behavior: The Role of Financial Literacy, Information, and Financial Education Programs," NBER Working Papers 13824, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Juan Monterrey & Amparo Sánchez-Segura, 2006. "Las características socioeconómicas como incentivos para la información financiera: evidencia empírica española," Investigaciones Economicas, Fundación SEPI, vol. 30(3), pages 611-634, September. [Downloadable!]
  10. Luca Benzoni & Pierre Collin-Dufresne & Robert S. Goldstein, 2007. "Portfolio choice over the life-cycle when the stock and labor markets are cointegrated," Working Paper Series WP-07-11, Federal Reserve Bank of Chicago. [Downloadable!]
  11. Luigi Guiso & Tullio Jappelli, 2005. "Awareness and Stock Market Participation," CFS Working Paper Series 2005/29, Center for Financial Studies. [Downloadable!]
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  12. Nevzat Eren & Han N. Ozsoylev, 2006. "Communication Dilemma in Speculative Markets," OFRC Working Papers Series 2006fe08, Oxford Financial Research Centre. [Downloadable!]
  13. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2005. "Trusting the Stock Market," CFS Working Paper Series 2005/27, Center for Financial Studies. [Downloadable!]
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  14. Dimitrios Christelis & Dimitris Georgarakos, 2008. "Investing at Home and Abroad: Different Costs, Different People?," CSEF Working Papers 188, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy. [Downloadable!]
  15. Annamaria Lusardi & Olivia S. Mitchell & Vilsa Curto, 2009. "Financial Literacy among the Young: Evidence and Implications for Consumer Policy," NBER Working Papers 15352, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  16. Zoran Ivkovich & Scott Weisbenner, 2004. "Information Diffusion Effects in Individual Investors' Common Stock Purchases: Covet Thy Neighbors' Investment Choices," NBER Working Papers 10436, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  17. Jens Ludwig & Jeffrey R. Kling, 2006. "Is Crime Contagious?," IZA Discussion Papers 2213, Institute for the Study of Labor (IZA). [Downloadable!]
  18. Yannis Ioannides, 2006. "Empirics of Social Interactions," Discussion Papers Series, Department of Economics, Tufts University 0611, Department of Economics, Tufts University. [Downloadable!]
  19. Shawn Cole & Xavier Giné & Jeremy Tobacman & Petia Topalova & Robert Townsend & James Vickery, 2009. "Barriers to household risk management: evidence from India," Staff Reports 373, Federal Reserve Bank of New York. [Downloadable!]
  20. Tuukka Saarimaa, 2008. "Owner-Occupied Housing and Demand for Risky Financial Assets: Some Finnish Evidence," Finnish Economic Papers, Finnish Economic Association, vol. 21(1), pages 22-38, Spring. [Downloadable!]
  21. Jens Ludwig & Jeffrey R. Kling, 2006. "Is Crime Contagious?," NBER Working Papers 12409, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  22. Renneboog, L.D.R. & Spaenjers, C., 2009. "Where Angels Fear to Trade: The Role of Religion in Household Finance," Discussion Paper 2009-34, Tilburg University, Center for Economic Research. [Downloadable!]
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  23. Eldar Beiseitov & Jeffrey D. Kubik & John R. Moran, 2004. "Social Interaction and the Health Insurance Choices of the Elderly," Center for Policy Research Working Papers 58, Center for Policy Research, Maxwell School, Syracuse University. [Downloadable!]
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