Information Diffusion Effects in Individual Investors' Common Stock Purchases Covet Thy Neighbors' Investment Choices

51 Pages Posted: 3 Jul 2007 Last revised: 29 Jul 2010

See all articles by Zoran Ivkovich

Zoran Ivkovich

Michigan State University, Department of Finance

Scott J. Weisbenner

University of Illinois at Urbana-Champaign - Department of Finance; National Bureau of Economic Research (NBER)

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Date Written: June 2007

Abstract

We study the relation between households' stock purchases and stock purchases made by their neighbors. A ten percentage point increase in neighbors' purchases of stocks from an industry is associated with a two percentage point increase in households' own purchases of stocks from that industry. The effect is considerably larger for local stocks and among households in more social states. Controlling for area sociability, households' and neighbors' investment style preferences, and the industry composition of local firms, we attribute approximately one-quarter to one-half of the correlation between households' stock purchases and stock purchases made by their neighbors to word-of-mouth communication.

Suggested Citation

Ivkovich, Zoran and Weisbenner, Scott J., Information Diffusion Effects in Individual Investors' Common Stock Purchases Covet Thy Neighbors' Investment Choices (June 2007). NBER Working Paper No. w13201. Available at SSRN: https://ssrn.com/abstract=997557

Zoran Ivkovich

Michigan State University, Department of Finance ( email )

315 Eppley Center
East Lansing, MI 48824-1122
United States

Scott J. Weisbenner (Contact Author)

University of Illinois at Urbana-Champaign - Department of Finance ( email )

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