Social Communication, Information Aggregation, and New Investor Participation

52 Pages Posted: 16 Apr 2013 Last revised: 10 Aug 2018

See all articles by Yu-Jane Liu

Yu-Jane Liu

Peking University - Guanghua School of Management

Juanjuan Meng

Peking University - Guanghua School of Management

Wei You

University of California, San Diego (UCSD)

Longkai Zhao

Peking University - Department of Finance

Date Written: April 24, 2018

Abstract

This paper proposes an approach that demands fewer data to estimate the effect of social interaction on stock market participation. Using data available publicly, we construct a sequence of measures of aggregated stock returns that are based on the same stock returns information and embed social interaction increasingly through different weighting functions. We show that this sequence of aggregated stock returns measures has increased explanatory power in new investors’ decisions to participate in the stock market. The effect is stronger when social interaction is stronger or social communication costs are lower, when the social information is positive and during bull markets. Our approach potentially is applicable to study the effects of social interactions in the aggregate in a wide range of contexts.

Keywords: Social communication, Information aggregation, Stock market participation

JEL Classification: D83, G11

Suggested Citation

Liu, Yu-Jane and Meng, Juanjuan and You, Wei and Zhao, Longkai, Social Communication, Information Aggregation, and New Investor Participation (April 24, 2018). Available at SSRN: https://ssrn.com/abstract=2251570 or http://dx.doi.org/10.2139/ssrn.2251570

Yu-Jane Liu

Peking University - Guanghua School of Management ( email )

Beijing
China

Juanjuan Meng (Contact Author)

Peking University - Guanghua School of Management ( email )

Peking University
Beijing, Beijing 100871
China

HOME PAGE: http://www.gsm.pku.edu.cn/faculty_and_research/en/en_teacherDetail.html?crmurl=http://crm.gsm.pku.ed

Wei You

University of California, San Diego (UCSD) ( email )

9500 Gilman Drive
Mail Code 0502
La Jolla, CA 92093-0112
United States

Longkai Zhao

Peking University - Department of Finance ( email )

Beijing, 100871
China

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