Information diffusion effects in individual investors' common stock purchases
covet thy neighbors' investment choices
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Author
Contributions
- Weisbenner, Scott J. - Contributor
- National Bureau of Economic Research. - Contributor
Publication
2007 - National Bureau of Economic Research, Cambridge, Mass, Massachusetts
Language
English
Word Count
12,250 words, Guess
Page Count
49 pages
Identifiers
- OCLC Control Number163566693
- Open LibraryOL17634564M
Description
"Using data on stock purchases individual investors made through a discount broker from 1991 to 1996, we study information diffusion effects the relation between household investment choices and those 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 the household's own purchases of stocks from that industry, with the effect considerably larger for purchases of local stocks. The presence of information diffusion effects is robust to controls for potential inside information effects and to household fixed effects. Upon controlling for aggregate trading patterns, households' and neighbors' investment style preferences, and the industry composition of local firms, we attribute approximately one-third to one-half of the overall diffusion effect to word-of-mouth communication. Disentangling the overall diffusion effect suggests that the significant relation between our measures of information diffusion and subsequent industry-level returns appears to be driven by its word-of-mouth component"--National Bureau of Economic Research web site.
Description
"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."--abstract.
Subjects
Topics
Series Statement
- NBER working paper series -- no. 13201.
- Working paper series (National Bureau of Economic Research) -- working paper no. 13201.
Links
Other Editions
- Information diffusion effects in individual investors' common stock purchases
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