Go with the Crowd? Neighbor Peer Effect on Household's Stock Investment Behavior

This paper explores how two types of neighbor effects, referring to participation and performance effects, affect household’s stock investment propensity and intensity. Using the sample of urban households in China, we find that both the higher stock participation rate and the performance in the neighborhood raises both the propensity and intensity of household stock investment, so does the stock winner rate. However, the effect of neighbor investing performance is even more pronounced than the neighbor participation. More interestingly, a broader range of households are influenced by neighbors’ investment behavior, while neighbors’ performance only notably affects so-called “marginal investor” with less stock holding. In addition, we also confirm that social learning is a potential channel, through which the neighbor investment behavior affects the household financial behavior. As a mediator, social learning explains larger proportion of the performance effect than participation effect