Credit Scores, Social Trust, and Stock Market Participation

Abstract

We propose the average credit score of a community as a metric of its social trust---a critical component of social capital. It is consistent with existing social capital indicators and can be constructed for more granular communities. We show that this social trust indicator has a strong association with stock investment of individuals living in the community, controlling for a rich set of investor and neighborhood characteristics. This association is more pronounced among the less educated, in areas with weaker law enforcement, and for stock investment through mutual funds, which requires delegation and relies more on trust. Furthermore, relocating to higher-social-capital communities predicts future stock market entries.