The role of social capital in financial development
| Authors | Guiso, Sapienza, Zingales |
| Journal | American Economic Review |
| Year | 2004 |
| Type | Published Paper |
| Abstract | To identify the effect of social capital on financial development, we exploit social capital differences within Italy. In high-social-capital areas, households are more likely to use checks, invest less in cash and more in stock, have higher access to institutional credit, and make less use of informal credit. The effect of social capital is stronger where legal enforcement is weaker and among less educated people. These results are not driven by omitted environmental variables, since we show that the behavior of movers is still affected by the level of social capital of the province where they were born. |
| Keywords | Household finance, social capital, financial development, education, legal environment |
| URL | https://www.aeaweb.org/articles?id=10.1257/0002828041464498 |
| Tags | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) | Theory |
Social interaction and stock-market participation
| Authors | Hong, Kubic, Stein |
| Journal | The Journal of Finance |
| Year | 2004 |
| Type | Published Paper |
| Abstract | We propose that stock-market participation is influenced by social interaction. In our model, any given "social" investor finds the market more attractive when more of his peers participate. We test this theory using data from the Health and Retirement Study, and find that social households - those who interact with their neighbors, or attend church - are substantially more likely to invest in the market than non-social households, controlling for wealth, race, education, and risk tolerance. Moreover, consistent with a peer-effects story, the impact of sociability is stronger in states where stock-market participation rates are higher. |
| Keywords | Social interaction, household investment decisions, word-of-mouth effect, enjoyment-from-talking-about-the-market, peer effects |
| URL | https://doi.org/10.1111/j.1540-6261.2004.00629.x |
| Tags | Archival Empirical | Financing- and Investment Decisions (Individual) | Social Network Structure |
The role of information and social interactions in retirement plan decisions: Evidence from a randomized experiment
| Authors | Duflo, Saez |
| Journal | Quarterly Journal of Economics |
| Year | 2003 |
| Type | Published Paper |
| Abstract | This paper analyzes a randomized experiment to shed light on the role of information and social interactions in employees' decisions to enroll in a Tax Deferred Account (TDA) retirement plan within a large university. The experiment encouraged a random sample of employees in a subset of departments to attend a benefits information fair organized by the university, by promising a monetary reward for attendance. The experiment multiplied by more than five the attendance rate of these treated individuals (relative to controls), and tripled that of untreated individuals within departments where some individuals were treated. TDA enrollment five and eleven months after the fair was significantly higher in departments where some individuals were treated than in departments where nobody was treated. However, the effect on TDA enrollment is almost as large for individuals in treated departments who did not receive the encouragement as for those who did. We provide three interpretations-differential treatment effects, social network effects, and motivational reward effects-to account for these results. |
| URL | https://academic.oup.com/qje/article-abstract/118/3/815/1943005 |
| Tags | Archival Empirical | Financing- and Investment Decisions (Individual) |
Participation and investment decisions in a retirement plan: The influence of colleagues' choices
| Authors | Duflo, Saez |
| Journal | Journal of Public Economics |
| Year | 2002 |
| Type | Published Paper |
| Abstract | This paper investigates whether peer effects play an important role in retirement savings decisions. We use individual data from employees of a large university to study whether individual decisions to enroll in a Tax Deferred Account plan sponsored by the university, and the choice of the mutual fund vendor for people who choose to enroll, are affected by the decisions of other employees in the same department. To overcome the identification problems, we divide the departments into sub-groups (along gender, status, age, and tenure lines) and we instrument the average participation of each peer group by the salary or tenure structure in this group. Our results suggest that peer effects may be an important determinant of savings decisions. |
| Keywords | Peer effects, retirement saving plans |
| URL | https://www.sciencedirect.com/science/article/abs/pii/S0047272701000986 |
| Tags | Archival Empirical | Financing- and Investment Decisions (Individual) |
The socio-economic dynamics of speculative markets: Interacting agents, chaos, and the fat tails of return distributions
| Authors | Lux |
| Journal | Journal of economic behavior & organization |
| Year | 1998 |
| Type | Published Paper |
| Abstract | This paper develops a model of the social and economic interaction of speculators in a securities or foreign exchange market. Both chartist and fundamentalist strategies are pursued by traders. The formalization of chartists behavior combines elements of mimetic contagion and trend chasing leading to waves of optimism or pessimism. Furthermore, changes of strategies from chartist to fundamentalist behavior and vice versa occur because speculators compare the performance of both strategies. The dynamic system under study encompasses the time development of the distribution of attitudes among traders as well as price adjustment. Chaotic attractors are found within a broad range of parameter values. The distributions of returns derived from chaotic trajectories of the model share important characteristics of empirical data: they exhibit high peaks around the mean as well as fat tails (leptokurtosis) and become less leptokurtotic under time aggregation. |
| Keywords | Herd behavior, bubbles, leptokurtosis |
| URL | https://www.sciencedirect.com/science/article/abs/pii/S0167268197000887 |
| Tags | Asset Pricing, Trading Volume and Market Efficiency | Financing- and Investment Decisions (Individual) | Propagation of Noise / Undesirable Outcomes | Social Network Structure | Theory |
Survey evidence on diffusion of interest and information among investors
| Authors | Shiller, Pound |
| Journal | Journal of Economic Behavior and Organization |
| Year | 1989 |
| Type | Published Paper |
| Abstract | Questionnaire surveys of institutional and individual investors were undertaken to learn about patterns of communications. It was found that direct interpersonal communications are very important in investor decisions. Questions elicited what fraction of investors were unsystematic and allowed themselves to be influenced by word-of-mouth communications or other salient stimuli. Randomly sampled investors were studied as well as investors in stocks whose price had recently increased dramatically. Contagion or epidemic models of financial markets are proposed in which interest in individual stocks is spread by word of mouth. The survey evidence is interpreted as supporting such models. |
| URL | https://doi.org/10.1016/0167-2681(89)90076-0 |
| Tags | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) | Investment Decisions (Institutional) |
Stock prices and social dynamics
| Authors | Shiller, Fischer, Friedman |
| Journal | Brookings papers on economic activity |
| Year | 1984 |
| Type | Published Paper |
| Keywords | Social movements, social psychology, group pressure, fashions, fads, stock prices |
| URL | https://www.jstor.org/stable/2534436 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Financing- and Investment Decisions (Individual) | Theory |