Social Interaction and Stock-Market Participation / Harrison Hong, Jeffrey D. Kubik, Jeremy C. Stein.

Format:

Book

Author/Creator:

Hong, Harrison.

Contributor:

National Bureau of Economic Research.

Kubik, Jeffrey D.

Stein, Jeremy C.

Series:

Working Paper Series (National Bureau of Economic Research) no. w8358.

NBER working paper series no. w8358

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2001.

Summary:

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.

Notes:

Print version record

July 2001.