Neighbors Matter: Causal Community Effects and Stock Market Participation

Jeffrey R. Brown, Zoran Ivković, Paul A. Smith, Scott Weisbenner

Research output: Contribution to journalArticlepeer-review


This paper establishes a causal relation between an individual's decision whether to own stocks and average stock market participation 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 nonnative 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-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.

Original languageEnglish (US)
Pages (from-to)1509-1531
Number of pages23
JournalJournal of Finance
Issue number3
StatePublished - May 9 2008

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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