TY  - JOUR
AU  - Hong,Harrison
AU  - Kubik,Jeffrey D.
AU  - Stein,Jeremy C.
TI  - Social Interaction and Stock-Market Participation
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8358
PY  - 2001
Y2  - July 2001
UR  - http://www.nber.org/papers/w8358
L1  - http://www.nber.org/papers/w8358.pdf
N1  - Author contact info:
Harrison Hong
Department of Economics
Princeton University
26 Prospect Avenue
Princeton, NJ 08540
Tel: 609/258-0259
Fax: 609/258-0771
E-Mail: hhong@princeton.edu

Jeremy C. Stein
Department of Economics
Harvard University
Littauer 209
Cambridge, MA  02138
Tel: 617/496-6455
Fax: 617/496-7352
E-Mail: jeremy_stein@harvard.edu
AB  - 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.
ER  -