Working Paper: CEPR ID: DP18067
Authors: Hans K Hvide; Tom G Meling; Magne Mogstad; Ola Vestad
Abstract: We study the effects of broadband internet use on the investment decisions of individual investors. A public program in Norway provides plausibly exogenous variation in internet use. Our instrumental variables estimates show that internet use causes a substantial increase in stock market participation, driven primarily by increased fund ownership. Existing investors tilt their portfolios towards funds, thereby obtaining more diversified portfolios and higher Sharpe ratios, and do not increase their trading activity in stocks. Overall, access to high-speed internet seems to spur a "Democratization of finance", with individuals making investment decisions that are more in line with the advice from portfolio theory.
Keywords: equity market participation; individual investors
JEL Codes: D83; G11; J2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Broadband internet use (L96) | Stock market participation (G19) |
| Broadband internet use (L96) | Financial decision-making (G11) |
| Broadband internet use (L96) | Portfolio efficiency (G11) |
| Broadband internet use (L96) | Participation in bonds and bond funds (G12) |
| Broadband internet use (L96) | Overall financial wealth (G59) |
| Broadband internet use (L96) | Returns on financial wealth (G19) |
| Broadband access (L96) | Stock market participation (G19) |