Paul A. Smith

Federal Reserve Board of Governors
Washington, DC 20551

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Institutional Affiliation: Federal Reserve Board

NBER Working Papers and Publications

June 2007Neighbors Matter: Causal Community Effects and Stock Market Participation
with Jeffrey R. Brown, Zoran Ivkovich, Scott Weisbenner: w13168
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.

Published: Jeffrey R. Brown & Zoran Ivkovic & Paul A. Smith & Scott Weisbenner, 2008. "Neighbors Matter: Causal Community Effects and Stock Market Participation," Journal of Finance, American Finance Association, vol. 63(3), pages 1509-1531, 06. citation courtesy of

January 2004The Geography of Stock Market Participation: The Influence of Communities and Local Firms
with Jeffrey R. Brown, Zoran Ivkovich, Scott Weisbenner: w10235
This paper is the first to investigate the importance of geography in explaining equity market participation. We provide evidence to support two distinct local area effects. The first is a community ownership effect, that is, individuals are influenced by the investment behavior of members of their community. Specifically, a ten percentage-point increase in equity market participation of the members of one's community makes it two percentage points more likely that the individual will invest in stocks. We find further evidence that the influence of community members is strongest for less financially sophisticated households and strongest within peer groups' as defined by age and income categories. The second is that proximity to publicly-traded firms also increases equity market participa...
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