Peer Effects in Stock Market Participation: Evidence from Immigration

Abstract

This paper studies how peers' financial behavior affects individuals' own investment choices. To identify the peer effect, we exploit the composition of the Luxembourg population and use the differences in stock market participation across various immigrant groups to study the effect on stock market participation of natives. We find that stock market participation of immigrant peers has a sizable effect on that of natives and that social learning is one of the channels through which this peer effect occurs. However, social learning alone does not account for the entire effect. Social utility might, therefore, also play an important role in peer effect transmission.