Neighbors Matter: Causal Community Effects and Stock Market Participation

Jeffrey R. Brown; Zoran Ivković; Paul A. Smith; Scott Weisbenner

doi:10.1111/j.1540-6261.2008.01364.x

Journal of Finance Vol. 63 No. 3 2008

Neighbors Matter: Causal Community Effects and Stock Market Participation

Jeffrey R. Brown^{1,2,3,4,5,6,7,8}; Zoran Ivković^{1,2,3,4,5,6,7,8}; Paul A. Smith^{1,2,3,4,5,6,7,8}; Scott Weisbenner⁴

¹ DePaul University · ² National Bureau of Economic Research · ³ Harvard University · ⁴ University of Illinois Urbana-Champaign · ⁵ University of Michigan–Ann Arbor · ⁶ Federal Reserve Board of Governors · ⁷ University of Virginia · ⁸ Michigan State University

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Abstract

This paper establishes a causal relation between an individual's decision whether to own stocks and average stock market participation of the individual's community. We instrument for the average ownership of an individual's community with lagged average ownership of the states in which one's nonnative neighbors were born. Combining this instrumental variables approach with controls for individual and community fixed effects, a broad set of time‐varying individual and community controls, and state‐year effects rules out alternative explanations. To further establish that word‐of‐mouth communication drives this causal effect, we show that the results are stronger in more sociable communities.

DOI: 10.1111/j.1540-6261.2008.01364.x
Volume: 63
Issue: 3
Pages: 1509-1531
Language: en
Sources: bibtex:phds-export.bib openalex crossref

Neighbors Matter: Causal Community Effects and Stock Market Participation

Abstract

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