Social Interaction and Stock-Market Participation

48 Pages Posted: 28 Jun 2001 Last revised: 6 Apr 2022

See all articles by Jeffrey D. Kubik

Jeffrey D. Kubik

Syracuse University - Department of Economics

Harrison G. Hong

Columbia University, Graduate School of Arts and Sciences, Department of Economics; National Bureau of Economic Research (NBER)

Jeremy C. Stein

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: July 2001

Abstract

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.

Suggested Citation

Kubik, Jeffrey D. and Hong, Harrison G. and Stein, Jeremy C., Social Interaction and Stock-Market Participation (July 2001). NBER Working Paper No. w8358, Available at SSRN: https://ssrn.com/abstract=275432

Jeffrey D. Kubik

Syracuse University - Department of Economics ( email )

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Harrison G. Hong (Contact Author)

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

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National Bureau of Economic Research (NBER)

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Jeremy C. Stein

Harvard University - Department of Economics ( email )

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HOME PAGE: http://post.economics.harvard.edu/faculty/stein/stein.html

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