Strength in Differences: How Racial Integration Shapes Household Financial Decision-Making
54 Pages Posted: 28 Sep 2021 Last revised: 5 Nov 2021
Date Written: September 15, 2021
Abstract
Using proprietary geocoded data from the Panel Study of Income Dynamics, I examine whether local racial integration influences financial decision-making. I find that individuals residing in racially integrated communities are more likely to invest in public equity markets after accounting for individual and county-level differences. Exploiting within-individual variation from relocation as well as using Great Migration population shocks as an instrument, I demonstrate that integration has a causal effect on participation. Evidence suggests that racial integration improves local information quality, lowering informational barriers to participation. Moreover, this informational advantage enables integrated investors to achieve superior risk-adjusted performance on their local portfolios.
Keywords: Household Finance, Information Environment, Social Structure, Behavioral Finance
JEL Classification: D14, D63, D83, D85, D91, G41, G51
Suggested Citation: Suggested Citation