Beyond connectivity: Stock market participation in a network

Arbeitspapier

What are the aggregate and distributional consequences of the relationship between an individual's social network and financial decisions? Motivated by several well-documented facts about the influence of social connections on financial decisions, we build and calibrate a model of stock market participation with a social network that emphasizes the interplay between connectivity and network structure. Since connections to informed agents help spread information, there is a pivotal role for factors that determine sorting among agents. An increase in the average number of connections raises the average participation rate, mostly due to richer agents. A higher degree of sorting benefits richer agents by creating clusters where information spreads more efficiently. We show empirical evidence consistent with the importance of connectivity and sorting. We discuss several new avenues for future research into the aggregate impact of peer effects in finance.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: SAFE Working Paper ; No. 416

Classification and Topics

• Classification: Wirtschaft
• Subject: Social networks ; Peer effects ; Stock Market Participation ; Connectivity ; Homophily

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Balakina, Olga ; Bäckman, Claes ; Parakhoniak, Anastasiia
• Event: Veröffentlichung
• (who): Leibniz Institute for Financial Research SAFE
• (where): Frankfurt a. M.
• (when): 2024

Further information

• DOI: doi:10.2139/ssrn.4763145
• Last update: 10.03.2025, 11:45 AM CET