Loved Ones Matter: Family Effects and Stock Market Participation

In this paper new and detailed empirical evidence on the impact of family on individuals’ stock market participation decision is provided. Since influence is likely to vary systematically over different types of individuals the heterogeneous effect of social interaction, in a setting including both community as well as within-family effects, is further examined. The main results indicate that individuals’ likelihood for subsequent participation increases (decreases) following positive (negative) parental and partner stock market experiences. The effect of social interaction is further found to be of relatively greater importance for individuals with relatively lower levels of financial literacy and for individuals with an on average higher level of interpersonal trust. In terms of gender, both male and female participation is positively affected by family influence, while community effects mainly pertain to males. JEL Classification: G11, D83