Information sharing and stock market participation: evidence from extended families
Using the Panel Study of Income Dynamics, we document that, controlling for observable characteristics, household investors' likelihood of entering the stock market within the next five years is about 30 percent higher if their parents or children had entered the stock market during the previous five years. Because even family members who live far away from each other tend to communicate frequently, despite the fact that interactions among people living close geographically have declined with the rise of alternative social channels, we argue that these findings highlight the significance of information sharing regarding household financial decisions. In addition, focusing on the sequential patterns of stock market entry, we explicitly take into account the time needed for information to be shared and disseminated among family members. Our finding that one member's entry positively influences future entries of other family members at distinct stages of the life cycle allows us to largely rule out the hypothesis that the observed correlations in stock market entries are primarily caused by common preferences shared by family members. Furthermore, because we do not find similar sequential patterns in stock market exits, our results do not support the hypothesis of herding behavior.
|Date of creation:||2009|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.federalreserve.gov/
More information through EDIRC
|Order Information:||Web: http://www.federalreserve.gov/pubs/feds/fedsorder.html|
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.:
- John Heaton & Deborah Lucas, 2000. "Portfolio Choice and Asset Prices: The Importance of Entrepreneurial Risk," Journal of Finance, American Finance Association, vol. 55(3), pages 1163-1198, 06.
- Frank P. Stafford & Ngina S. Chiteji, 1999. "Portfolio Choices of Parents and Their Children as Young Adults: Asset Accumulation by African-American Families," American Economic Review, American Economic Association, vol. 89(2), pages 377-380, May.
- Lusardi, Annamaria & Mitchell, Olivia S., 2010.
"How ordinary consumers make complex economic decisions: Financial literacy and retirement readiness,"
CFS Working Paper Series
2010/11, Center for Financial Studies (CFS).
- Annamaria Lusardi & Olivia S. Mitchell, 2009. "How Ordinary Consumers Make Complex Economic Decisions: Financial Literacy and Retirement Readiness," NBER Working Papers 15350, National Bureau of Economic Research, Inc.
- Annamaria Lusardi & Olivia S. Mitchell, 2009. "How Ordinary Consumers Make Complex Economic Decisions: Financial Literacy and Retirement Readiness," CeRP Working Papers 90, Center for Research on Pensions and Welfare Policies, Turin (Italy).
- Julie Agnew & Pierluigi Balduzzi & Annika Sundén, 2003. "Portfolio Choice and Trading in a Large 401(k) Plan," American Economic Review, American Economic Association, vol. 93(1), pages 193-215, March.
- James M. Poterba & Andrew A. Samwick, 1995.
"Stock Ownership Patterns, Stock Market Fluctuations, and Consumption,"
Brookings Papers on Economic Activity,
Economic Studies Program, The Brookings Institution, vol. 26(2), pages 295-372.
- Poterba, J.M. & Samwick, A.A., 1996. "Stock Ownership Patterns, Stock Market Fluctuations, and Consumption," Working papers 96-2, Massachusetts Institute of Technology (MIT), Department of Economics.
- Kerwin Kofi Charles & Erik Hurst, 2002.
"The Correlation of Welath Across Generations,"
NBER Working Papers
9314, National Bureau of Economic Research, Inc.
- Kerwin Kofi Charles & Sheldon Danziger & Geng Li & Robert F. Schoeni, 2006. "Studying consumption with the Panel Study of Income Dynamics: comparisons with the Consumer Expenditure Survey and an application to the intergenerational transmission of well-being," Finance and Economics Discussion Series 2007-16, Board of Governors of the Federal Reserve System (U.S.).
When requesting a correction, please mention this item's handle: RePEc:fip:fedgfe:2009-47. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kris Vajs)
If references are entirely missing, you can add them using this form.