Information Diffusion Effects in Individual Investors' Common Stock Purchases Covet Thy Neighbors' Investment Choices

Zoran Ivkovich and Scott Weisbenner

No 13201, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: D14 D83 G11 (search for similar items in EconPapers)
Date: 2007-06
New Economics Papers: this item is included in nep-ure
Note: AP
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Citations: View citations in EconPapers (86)

Published as Review of Financial Studies (2007) 20 (4): 1327-1357. doi: 10.1093/revfin/hhm009

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Related works:
Journal Article: Information Diffusion Effects in Individual Investors' Common Stock Purchases: Covet Thy Neighbors' Investment Choices (2007)
Working Paper: Information Diffusion Effects in Individual Investors' Common Stock Purchases: Covet Thy Neighbors' Investment Choices (2004)
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