Social Interaction and Stock-Market Participation


  • Harrison Hong,

  • Jeffrey D. Kubik,

  • Jeremy C. Stein

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    • Hong is with the Department of Economics, Princeton University; Kubik is with the Department of Economics, Syracuse University; and Stein is with the Department of Economics, Harvard University, and NBER. We are grateful to the National Science Foundation for research support, and to Ed Glaeser, Rick Green, Michael Kremer, David Laibson, Jun Liu, Michael Morris, Mark Rubinstein, Lara Tiedens, Tuomo Vuolteenaho, Ezra Zuckerman, and the referee for their comments and suggestions. Thanks also to seminar participants at Berkeley, Chicago, Columbia, Illinois, Iowa, Ohio State, Rochester, and Stanford. Any remaining errors are our own.


We propose that stock-market participation is influenced by social interaction. In our model, any given “social” investor finds the market more attractive when more of his peers participate. We test this theory using data from the Health and Retirement Study, and find that social households—those who interact with their neighbors, or attend church—are substantially more likely to invest in the market than non-social households, controlling for 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.