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Neighbors Matter: Causal Community Effects and Stock Market Participation

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  • Jeffrey R. Brown
  • Zoran Ivkovich
  • Paul A. Smith
  • Scott Weisbenner

Abstract

This paper establishes a causal relation between an individual's decision of whether to own stocks and average stock market participation decision of the individual's community. We instrument for the average ownership of an individual's community with lagged average ownership of the states in which one's non-native neighbors were born. Combining this instrumental variables approach with controls for individual and community fixed effects, a broad set of time-varying individual and community controls, and state-by-year effects, rules out alternative explanations. To further establish that word-of-mouth communication drives this causal effect, we show that the results are stronger in more sociable communities.

Suggested Citation

  • Jeffrey R. Brown & Zoran Ivkovich & Paul A. Smith & Scott Weisbenner, 2007. "Neighbors Matter: Causal Community Effects and Stock Market Participation," NBER Working Papers 13168, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:13168
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    References listed on IDEAS

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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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