Local Agglomeration and Stock Market Participation
40 Pages Posted: 31 Jan 2017 Last revised: 19 Jul 2017
Date Written: July 18, 2017
We study the impact of local agglomeration economies on stock market participation. Using multiple datasets, we find that when the industry in which individuals work is locally agglomerated, they are more likely to participate in the stock market and, conditional on participation, allocate more to stocks. Further, we show that this relationship is especially strong among skilled workers. We find that the local agglomeration effect is not explained by risk tolerance, worker inertia, or a preference for stocks of firms that are in the same industry as the worker. Instead, our findings are consistent with local agglomeration enhancing human capital and in turn, raising workers' optimal allocations to risky assets. More generally, our analysis underscores the role of geography in shaping human capital and household financial decisions.
Keywords: human capital, portfolio decisions, household finance
JEL Classification: G11, J24, R23
Suggested Citation: Suggested Citation