Working Paper: NBER ID: w13201
Authors: Zoran Ivkovich; Scott Weisbenner
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.
Keywords: Information Diffusion; Individual Investors; Stock Purchases; Word-of-Mouth Communication
JEL Codes: D14; D83; G11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Community size (R23) | Sensitivity of households to neighbors' investment choices (G59) |
| Word-of-mouth communication (L96) | Overall diffusion effect (C22) |
| Neighbors' stock purchases (G34) | Household's own purchases (D19) |
| Neighbors' stock purchases (local) (G59) | Household's own purchases (local) (D19) |
| Neighbors' stock purchases (nonlocal) (G40) | Household's own purchases (nonlocal) (D19) |