Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/289595 
Year of Publication: 
2024
Series/Report no.: 
SAFE Working Paper No. 416
Publisher: 
Leibniz Institute for Financial Research SAFE, Frankfurt a. M.
Abstract: 
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.
Subjects: 
Social networks
Peer effects
Stock Market Participation
Connectivity
Homophily
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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