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Information Diffusion Effects in Individual Investors' Common Stock Purchases Covet Thy Neighbors' Investment Choices

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Zoran Ivkovich
Scott Weisbenner
Abstract

We study the relation between households' stock purchases and stock purchases made by their neighbors. A ten percentage point increase in neighbors' purchases of stocks from an industry is associated with a two percentage point increase in households' own purchases of stocks from that industry. The effect is considerably larger for local stocks and among households in more social states. Controlling for area sociability, households' and neighbors' investment style preferences, and the industry composition of local firms, we attribute approximately one-quarter to one-half of the correlation between households' stock purchases and stock purchases made by their neighbors to word-of-mouth communication.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13201.

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Date of creation: Jun 2007
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Handle: RePEc:nbr:nberwo:13201

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Find related papers by JEL classification:
D14 - Microeconomics - - Household Behavior - - - Personal Finance
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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