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Social Interaction and Stock-Market Participation

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

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Abstract

We investigate the idea that stock-market participation is influenced by social interaction. We build a simple model in which any given 'social' investor finds it more attractive to invest in the market when the participation rate among his peers is higher. The model predicts higher participation rates among social investors than among 'non-socials'. It also admits the possibility of multiple social equilibria. We then test the theory using data from the Health and Retirement Study. Social households - defined as those who interact with their neighbors, or who attend church - are indeed substantially more likely to invest in the stock market than non-social households, controlling for other factors like 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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8358.

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Date of creation: Jul 2001
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Handle: RePEc:nbr:nberwo:8358

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Find related papers by JEL classification:
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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References listed on IDEAS
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Fabio Sabatini, 2005. "Social Capital, Public Spending and the Quality of Economic Development," Others 0506014, EconWPA. [Downloadable!]
  2. Fabio Sabatini, 2005. "The empirics of social capital and economic development. A critical perspective," Development and Comp Systems 0512015, EconWPA. [Downloadable!]
  3. Guiso, Luigi & Haliassos, Michalis & Jappelli, Tullio, 2003. "Household Stockholding in Europe: Where Do We Stand, and Where Do We Go?," CEPR Discussion Papers 3694, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  4. Geoffrey Heal & Howard Kunreuther, 2007. "Social Reinforcement: Cascades, Entrapment and Tipping," NBER Working Papers 13579, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. 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)
    Other versions:
  6. Amegashie, J.A., 2002. "Misery Loves Company: Social Influence and the Supply/Pricing Decision of Popular Night Clubs," Working Papers 2002-10, University of Guelph, Department of Economics. [Downloadable!]
  7. Marcelo Pinheiro, 2008. "Demand shocks and market manipulation," Annals of Finance, Springer, vol. 4(3), pages 269-298, July. [Downloadable!] (restricted)
  8. Fabio Sabatini, 2006. "The Empirics of Social Capital and Economic Development: A Critical Perspective," Working Papers 2006.15, Fondazione Eni Enrico Mattei. [Downloadable!]
    Other versions:
  9. Kevin M. Murphy & Andrei Shleifer, 2004. "Persuasion in Politics," American Economic Review, American Economic Association, vol. 94(2), pages 435-439, May. [Downloadable!]
    Other versions:
  10. Fabio Sabatini, 2006. "Social Capital and Labour Productivity in Italy," Working Papers 2006.30, Fondazione Eni Enrico Mattei. [Downloadable!]
  11. Christiansen, Charlotte & Joensen, Juanna Schröter & Rangvid, Jesper, 2005. "Do More Economists Hold Stocks?," Finance Research Group Working Papers F-2005-02, University of Aarhus, Aarhus School of Business, Department of Business Studies. [Downloadable!]
    Other versions:
  12. 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!]
  13. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2005. "Trusting the Stock Market," NBER Working Papers 11648, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  14. Aureo de Paula, 2004. "Social Interactions in a Synchronization Game," Econometric Society 2004 Latin American Meetings 277, Econometric Society. [Downloadable!]
  15. Claudio Campanale, 2005. "Increasing Returns To Savings And Wealth Inequality," Working Papers. Serie AD 2005-20, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie). [Downloadable!]
    Other versions:
  16. D. Lee Heavner & Lance Lochner, 2002. "Social Networks and the Aggregation on Individual Decisions," NBER Working Papers 8979, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  17. Theodoro D. Cocca, 2002. "Transaktionskostentheoretische Betrachtung des Anlageverhaltens im Online-Handel und deren empirische Evidenz," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 138(IV), pages 439-464, December. [Downloadable!]
  18. Fabio Sabatini, 2005. "The empirics of social capital and economic development: a critical perspective," Development and Comp Systems 0512008, EconWPA. [Downloadable!]
    Other versions:
  19. Fabio Sabatini, 2006. "Social Capital, Public Spending and the Quality of Economic Development: The Case of Italy," Working Papers 2006.14, Fondazione Eni Enrico Mattei. [Downloadable!]
  20. Jeffrey Bailey & John Nofsinger & Michele O'Neill, 2003. "A Review of Major Influences on Employee Retirement Investment Decisions," Journal of Financial Services Research, Springer, vol. 23(2), pages 149-165, April. [Downloadable!] (restricted)
  21. Zwiebel, Jeffrey H. & Vayanos, Dimitri & DeMarzo, Peter M., 2001. "Persuasion Bias, Social Influence, and Uni-Dimensional Opinions," Research Papers 1719, Stanford University, Graduate School of Business. [Downloadable!]
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