Road to Stock Market Participation

63 Pages Posted: 2 Aug 2021

See all articles by Sumit Agarwal

Sumit Agarwal

National University of Singapore

Meghana Ayyagari

University of Maryland - Robert H. Smith School of Business; George Washington University - School of Business

Yuxi Cheng

George Washington University

Pulak Ghosh

Indian Institute of Management (IIMB), Bangalore

Date Written: August 1, 2021

Abstract

We study the impact of a national road construction program that brought access to previously
unconnected pincodes in India, on stock market participation. Using a unique dataset on the
trading behavior of over 13 million individuals, we find that construction of new feeder roads to a
pincode increases the number of new investors by 6.8% and the number of trades by 7.9% and the effects are larger for rural vs. urban areas and for pincodes at intermediate levels of development. The stock market participation effects are largely driven by new bank branch openings within three years of the road construction suggesting a financial inclusion channel. We also see greater effects for pincodes more distant from the nearest big city, greater portfolio diversification, and increased trading in companies located farther away, all suggesting an information channel.

Keywords: Trading behavior, Financial Inclusion, Information, Banks, Infrastructure

JEL Classification: 012, O16, 018, D8, G21

Suggested Citation

Agarwal, Sumit and Ayyagari, Meghana and Ayyagari, Meghana and Cheng, Yuxi and Ghosh, Pulak, Road to Stock Market Participation (August 1, 2021). Available at SSRN: https://ssrn.com/abstract=3897168 or http://dx.doi.org/10.2139/ssrn.3897168

Sumit Agarwal

National University of Singapore ( email )

15 Kent Ridge Drive
Singapore, 117592
Singapore
8118 9025 (Phone)

HOME PAGE: http://www.ushakrisna.com

Meghana Ayyagari (Contact Author)

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States

George Washington University - School of Business ( email )

Washington, DC 20052
United States

Yuxi Cheng

George Washington University ( email )

Washington, DC 20052
United States

Pulak Ghosh

Indian Institute of Management (IIMB), Bangalore ( email )

Bannerghatta Road
Bangalore, Karnataka 560076
India

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