Does Diversity Lead to Diverse Opinions? Evidence from Languages and Stock Markets
National Taiwan University - College of Management
Harrison G. Hong
Columbia University, Graduate School of Arts and Sciences, Department of Economics; National Bureau of Economic Research (NBER)
Stanford Graduate School of Business
Hofstra University - Frank G. Zarb School of Business
Shanghai Advanced Institute of Finance; Shanghai Jiao Tong University (SJTU); China Academy of Financial Research (CAFR)
January 19, 2015
Rock Center for Corporate Governance at Stanford University Working Paper No. 168
Stanford University Graduate School of Business Research Paper No. 13-16
Diversity of opinions among investors plays a crucial role in models of financial market speculation and bubbles. Yet, little is known about the origins of investor disagreement. Using unique data from China, we identify an important cultural and linguistic factor. We show that investors living in linguistically diverse areas express more diverse opinions on stock message boards and trade stocks more actively. We use geographical isolation of an area due to hilly terrain as an instrument for linguistic diversity. We then discriminate in favor of a differential interpretations mechanism and against slow news diffusion due to language barriers.
Number of Pages in PDF File: 53
Date posted: January 1, 2014 ; Last revised: January 20, 2015
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