Stock Market Participation, Networks and Beliefs
Authors: Nora Laurinaityte (Goethe University)
Title: Stock Market Participation, Networks and Beliefs
Abstract: This paper exploits the geographic heterogeneity in stock market participation rates across the US, and the roles individual beliefs and information sharing through individual´s network play in explaining this heterogeneity. Using Facebook county-level connectivity data, the Climate Change in the American Mind Survey, the US Census Bureaus and the Internal Revenue Services (IRS) information, I find that the similarity in average county beliefs increases with the county connectivity. Counties that are only weakly connected hold on average opposing beliefs about whether the climate change is happening, whether it is human-caused, and whether certain policies are to be implemented. They also tend to exhibit significant differences in their financial market participation rates. Counties that have an above-median degree of social network connectivity, hold significantly positively correlated beliefs and exhibit similar stock market participation rates. My findings indicate that similar people tend to connect only with people like them, with very little interaction across the two opposing-belief groups. This polarization in beliefs is significant in explaining observed stock market heterogeneity in the US.