Markov Model of Word-of-Mouth Effect and Stock Market Participation

다국어 초록 (Multilingual Abstract)

The question of determinants of participation of stock market has long been a central question to financial economists. Most notably, Hong, Kubik,and Stein (2001) argue that social interactions affects the investment decision of potential stock market investors through two popular channels:word-of-mouth and pleasure-in-talk about stock market. In this paper, I extend Hong et al.’s model of social interactions to incorporate different effects of these two channels on stock market participation, conditioning on current market situation. The idea is intuitive: When potential investors observe current bull (bear) market, word-of-mouth and pleasure-in-talk effect would work positively (negatively) toward stock market participation due to increased number of peers who benefitted (lost their wealth) from bull (bear)market situation. In Markov chain process framework, I model stock market participation depending on current market situation and discuss empirical implications of my model.

참고문헌 (Reference)

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