Does Diversity Lead to Diverse Opinions? Evidence from Languages and Stock Markets

53 Pages Posted: 1 Jan 2014 Last revised: 20 Jan 2015

Yen-Cheng Chang

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)

Larissa Tiedens

Stanford Graduate School of Business

Na Wang

Hofstra University - Frank G. Zarb School of Business

Bin Zhao

Shanghai Advanced Institute of Finance; Shanghai Jiao Tong University (SJTU); China Academy of Financial Research (CAFR)

Date Written: January 19, 2015

Abstract

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.

Suggested Citation

Chang, Yen-Cheng and Hong, Harrison G. and Tiedens, Larissa and Wang, Na and Zhao, Bin, Does Diversity Lead to Diverse Opinions? Evidence from Languages and Stock Markets (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. Available at SSRN: https://ssrn.com/abstract=2373097 or http://dx.doi.org/10.2139/ssrn.2373097

Yen-Cheng Chang (Contact Author)

National Taiwan University - College of Management ( email )

Department and Graduate Institute of Finance
College of Management
Taipei 106
Taiwan

Harrison G. Hong

Columbia University, Graduate School of Arts and Sciences, Department of Economics ( email )

420 W. 118th Street
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Larissa Tiedens

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Na Wang

Hofstra University - Frank G. Zarb School of Business ( email )

134 Hofstra University
Hempstead, NY 11549
United States

Bin Zhao

Shanghai Advanced Institute of Finance ( email )

211 West Huaihai Road
Shanghai, 200030
China

Shanghai Jiao Tong University (SJTU) ( email )

KoGuan Law School
Shanghai 200030, Shanghai 200052
China

China Academy of Financial Research (CAFR) ( email )

1954 Huashan Road
Shanghai P.R.China, 200030
China

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