History versus Geography: The Role of College Interaction in Portfolio Choice and Stock Market Prices

Massimo Massa and Andrei Simonov

No 4815, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We study the link between portfolio choice and different college-based interaction ? defined as the one that relates the portfolio choice of an investor to that of the other investors who went to the same college. We explain it in terms of a common cultural imprinting and the development of long-term friendship and alumni network and we directly quantify this bonding effect. We use a new dataset with information on portfolio choice ? broken down at the stock level ? wealth, income and demographic characteristics of a big panel of investors as well as information on the college they attended and their family situation at the time. We compare college-based interaction to other forms of social interaction, such as educational, professional and geographical interaction, properly controlling for all the standard motivations of portfolio theory, such as hedging of non-financial income risk, familiarity and information effects, wealth and income effect, a host of demographic, geographic and professional dummies, trend-chasing and momentum behaviour. All the different sources of social interaction significantly affect stock-picking as well as the choice between direct and delegated investment, both statistically and economically. College-based interaction is, however, the most important of them and the third single most important factor affecting stock picking. The impact of college-based interaction aggregates at the market level and affects stock prices. For each company, we construct measures of the degree of strength of college-based interaction among shareholders. We show that an increase in the strength of interaction reduces stock return and volatility. This can be rationalized in terms of recent theories on the impact of dispersion of beliefs in the presence of short-sale constraints.

Keywords: Portfolio choice; Social interaction; Education; Asset pricing (search for similar items in EconPapers)
JEL-codes: G11 G14 (search for similar items in EconPapers)
Date: 2004-12
New Economics Papers: this item is included in nep-fin, nep-fmk, nep-geo, nep-his and nep-net
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://cepr.org/publications/DP4815 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:4815

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP4815

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().