Beyond connectivity: Stock market participation in a network

Olga Balakina, Claes Bäckman and Anastasiia Parakhoniak

No 416, SAFE Working Paper Series from Leibniz Institute for Financial Research SAFE

Abstract: What are the aggregate and distributional consequences of the relationship between an individual's social network and financial decisions? Motivated by several well-documented facts about the influence of social connections on financial decisions, we build and calibrate a model of stock market participation with a social network that emphasizes the interplay between connectivity and network structure. Since connections to informed agents help spread information, there is a pivotal role for factors that determine sorting among agents. An increase in the average number of connections raises the average participation rate, mostly due to richer agents. A higher degree of sorting benefits richer agents by creating clusters where information spreads more efficiently. We show empirical evidence consistent with the importance of connectivity and sorting. We discuss several new avenues for future research into the aggregate impact of peer effects in finance.

Keywords: Social networks; Peer effects; Stock Market Participation; Connectivity; Homophily (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-net, nep-soc and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:safewp:289595

DOI: 10.2139/ssrn.4763145

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