We investigate the idea that stock-market participation is influenced by social
interaction. We build a simple model in which any given “social” investor finds it more
attractive to invest in the market when the participation rate among his peers is higher.
The model predicts higher participation rates among social investors than among “non-
socials”. It also admits the possibility of multiple social equilibria. We then test the
theory using data from the Health and Retirement Study. Social households—defined as
those who interact with their neighbors, or who attend church—are indeed substantially
more likely to invest in the stock market than non-social households, controlling for other
factors like wealth, race, education and risk tolerance. Moreover, consistent with a peer-
effects story, the impact of sociability is stronger in states where stock-market
participation rates are higher.
Social Interaction and Stock‐Market Participation pdf download
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