Information Sharing and Stock Market Participation: Evidence from Extended Families

20 Pages Posted: 15 Apr 2009 Last revised: 27 Jul 2009

See all articles by Geng Li

Geng Li

Board of Governors of the Federal Reserve System

Multiple version iconThere are 2 versions of this paper

Date Written: July 25, 2009

Abstract

Using the Panel Study of Income Dynamics, we document that, controlling for observable characteristics, household investors' likelihood of entering stock markets within the ensuing five years is 30 percent higher if their parents or children had entered stock markets within the previous five years. We interpret the findings as evidence that information sharing among parents and children plays an important role facilitating household financial decisions. We can largely rule out outstanding competitive hypothesis for four reasons. First, members of the same extended family are bound by exogenous biological ties, instead of endogenous matching. Second, even family members live far away from each other tend to communicate frequently, even as interactions among people living close geographically decline due to the rise of alternative social channels. Third, by studying the sequential patterns of stock ownership changes, we explicitly address the fact that information sharing and dissemination take time and rule out the potential nature and nurture effects. Finally, because we did not find the same sequential patterns in stock market exits, our results do not support the hypothesis of herding behavior.

Keywords: Information sharing, Stock market participation, Extended families

JEL Classification: D14, D83, G21

Suggested Citation

Li, Geng, Information Sharing and Stock Market Participation: Evidence from Extended Families (July 25, 2009). Available at SSRN: https://ssrn.com/abstract=1383072 or http://dx.doi.org/10.2139/ssrn.1383072

Geng Li (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
99
Abstract Views
718
Rank
303,407
PlumX Metrics