Peer Effects in Stock Market Participation: Evidence from Immigration

55 Pages Posted: 8 Jan 2020

See all articles by Anastasia Girshina

Anastasia Girshina

Swedish House of Finance

Thomas Y. Mathä

Banque centrale du Luxembourg

Michael Ziegelmeyer

Banque centrale du Luxembourg; Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Social Law and Social Policy

Date Written: December, 2019

Abstract

This paper studies how peers’ financial behaviour affects individuals’ own investment choices. To identify the peer effect, we exploit the unique composition of the Luxembourg population and use the differences in stock market participation across various immigrant groups to study how they affect stock market participation of natives. We solve the reflection problem by instrumenting immigrants’ stock market participation with lagged participation rates in their countries of birth. We separate the peer effect from the contextual and correlated effects by controlling for neighbourhood and individual characteristics. We find that stock market participation of immigrant peers has sizeable effects on that of natives. We also provide evidence that social learning is one of the channels through which the peer effect is transmitted. However, social learning alone does not account for the entire effect and we conclude that social utility might also play an important role in peer effects transmission.

Keywords: peer effects, social learning, social utility, stock market participation

JEL Classification: G5, D14, D83, G11, I22

Suggested Citation

Girshina, Anastasia and Mathä, Thomas Y. and Ziegelmeyer, Michael Heinrich, Peer Effects in Stock Market Participation: Evidence from Immigration (December, 2019). ECB Working Paper No. 2340. Available at SSRN: https://ssrn.com/abstract=3515394

Anastasia Girshina (Contact Author)

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Thomas Y. Mathä

Banque centrale du Luxembourg ( email )

2, bd Royal
L-2983 Luxembourg
Luxembourg
+352 4774 4270 (Phone)
+352 4774 4920 (Fax)

Michael Heinrich Ziegelmeyer

Banque centrale du Luxembourg ( email )

2, boulevard Royal
Luxembourg, L-2983
Luxembourg

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Social Law and Social Policy ( email )

Amalienstraße 33
München, 80799
Germany

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