Who Owned Citibank? Familiarity Bias and Business Network Influences on Stock Purchases, 1925-1929

Charles W. Calomiris, Elliot S.M. Oh

NBER Working Paper No. 24431
Issued in March 2018
NBER Program(s):Corporate Finance, Development of the American Economy

We study factors influencing individuals’ decisions to purchase Citibank stock during the 1920s. Citibank stock had a very high price per share and was only an investment option for wealthy people. The willingness to own shares was encouraged by proximity to New York, but constraints related to wealth and location were not the only barriers to stockholding. Lack of familiarity was also a barrier. Only a tiny fraction of the wealthy business elite living in the New York City metropolitan area owned Citibank shares. Individual characteristics related to wealth, knowledge, and one’s influence within the New York City business network increased the probability of becoming a Citibank shareholder. Those factors became less important during the stock price boom after 1927, and highly influential people became less likely than others to purchase Citibank shares during the price boom. Network connections were an important influence on purchase decisions. Having business connections with Citibank officers and directors, or with people who had such connections, increased the probability of buying Citibank shares. Furthermore, having business connections with other Citibank shareholders also increased the probability of buying Citibank shares. Thus network influence reflected more than the transmission of inside information; executives imitated each other’s stock buying behavior, which provides further evidence of the importance of familiarity for purchases. The role of network influences, like other identifiable influences, became less important during the price boom after 1927, likely reflecting the rising importance of other means of increasing familiarity during the price boom (i.e., media coverage).

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Document Object Identifier (DOI): 10.3386/w24431

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