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

Posted: 25 Jun 2008

See all articles by Zoran Ivkovi

Zoran Ivkovi

affiliation not provided to SSRN

Scott J. Weisbenner

University of Illinois at Urbana-Champaign - Department of Finance; National Bureau of Economic Research (NBER)

Date Written: 2007

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.

Keywords: D14, D83, G11

Suggested Citation

Ivkovi, Zoran and Weisbenner, Scott J., Information Diffusion Effects in Individual Investors' Common Stock Purchases: Covet Thy Neighbors' Investment Choices (2007). The Review of Financial Studies, Vol. 20, No. 4, pp. 1327-1357, 2007, Available at SSRN: https://ssrn.com/abstract=1151159 or http://dx.doi.org/10.1093/rfs/hhm009

Zoran Ivkovi (Contact Author)

affiliation not provided to SSRN ( email )

Scott J. Weisbenner

University of Illinois at Urbana-Champaign - Department of Finance ( email )

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HOME PAGE: http://business.illinois.edu/weisbenn/

National Bureau of Economic Research (NBER) ( email )

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