We study the relation between households stock purchases and stock purchases made by their neighbors. A ten percentage point increase in neighbors purchases of stocks from an industry is associated with a two percentage point increase in households own purchases of stocks from that industry. The effect is considerably larger for local stocks and among households in more social states. Controlling for area sociability, households and neighbors investment style preferences, and the industry composition of local firms, we attribute approximately one-quarter to one-half of the correlation between households stock purchases and stock purchases made by their neighbors to word-of-mouth communication.
ASJC Scopus subject areas
- Economics and Econometrics