Beyond Connectivity: Stock Market Participation in a Network

38 Pages Posted: 7 May 2019 Last revised: 5 Jul 2023

See all articles by Olga Balakina

Olga Balakina

Aarhus University

Claes Bäckman

Aarhus University - Department of Economics and Business Economics; Knut Wicksell Centre for Financial Studies

Anastasia Parakhonyak

Durham University Business School

Date Written: April 9, 2019

Abstract

The past twenty years have seen an explosion in our ability to share financial information on social networks, yet stock market participation has barely changed. We introduce an equilibrium model of stock market participation with a social network to show that the effect of connectivity on stock market participation depends on how efficient information spreads, which is linked to how agents are connected, homophily and inequality. High-income agents benefit more from connectivity, leading to increased inequality. We discuss the implications for access to financial information, wealth inequality, and stock market participation.

Keywords: Social networks; Peer effects; Stock Market Participation; Connectivity

JEL Classification: D14, D85, G11

Suggested Citation

Balakina, Olga and Bäckman, Claes and Parakhonyak, Anastasia, Beyond Connectivity: Stock Market Participation in a Network (April 9, 2019). Available at SSRN: https://ssrn.com/abstract=3368851 or http://dx.doi.org/10.2139/ssrn.3368851

Olga Balakina

Aarhus University ( email )

Fuglesangs Allé 4
Aarhus V, 8210
Denmark

Claes Bäckman

Aarhus University - Department of Economics and Business Economics ( email )

Fuglesangs Allé 4
Aarhus V, 8210
Denmark

Knut Wicksell Centre for Financial Studies ( email )

Box 7080
Lund, SE-220 07
Sweden

Anastasia Parakhonyak (Contact Author)

Durham University Business School ( email )

Mill Hill Lane
Durham, DH1 3LB
United Kingdom

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