Does Diversity Lead to Diverse Opinions? Evidence from Languages and Stock Markets
Rock Center for Corporate Governance at Stanford University Working Paper No. 168
Stanford University Graduate School of Business Research Paper No. 13-16
53 Pages Posted: 1 Jan 2014 Last revised: 24 Aug 2023
Date Written: January 19, 2015
Abstract
Diversity of opinions among investors plays a crucial role in models of financial market speculation and bubbles. Yet, little is known about the origins of investor disagreement. Using unique data from China, we identify an important cultural and linguistic factor. We show that investors living in linguistically diverse areas express more diverse opinions on stock message boards and trade stocks more actively. We use geographical isolation of an area due to hilly terrain as an instrument for linguistic diversity. We then discriminate in favor of a differential interpretations mechanism and against slow news diffusion due to language barriers.
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