Working Paper: NBER ID: w13168
Authors: Jeffrey R. Brown; Zoran Ivkovich; Paul A. Smith; Scott Weisbenner
Abstract: This paper establishes a causal relation between an individual's decision of whether to own stocks and average stock market participation decision 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 non-native 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-by-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.
Keywords: Stock Market Participation; Community Effects; Word-of-Mouth Communication
JEL Codes: G11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Community stock ownership (P13) | Individual stock market participation (G19) |
| Average ownership in one's community (R21) | Individual stock market participation (G19) |
| Community stock ownership (P13) | Word-of-mouth communication (L96) |
| Word-of-mouth communication (L96) | Individual stock market participation (G19) |