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ABSTRACT
This paper investigates the relation between a cultural orientation toward individualism and household stock market participation. We adopt an epidemiological approach to establish causality. Employing large samples of second-generation immigrants in the U.S. and Europe, we focus on how the cultural heritage of individuals from different origins influences their engagement in stock market participation. To verify this relationship, we utilize data from the the Current Population Survey (CPS) and the Survey of Health, Ageing and Retirement in Europe (SHARE). Our findings reveal that immigrants from countries with a stronger individualistic cultural orientation are more likely to participate in the stock market. Furthermore, by leveraging data from the U.S. Census and American Community Survey (ACS), we demonstrate that the positive effect of individualistic cultural heritage is amplified for immigrants whose parents have made significant cultural investments. Additionally, utilizing data from the General Social Survey (GSS) to identify cultural mechanisms, we uncover that individualism culture shapes immigrants’ beliefs by fostering trust and optimism. Overall, our empirical evidence underscores the profound and persistent of culture on household stock market participation.
Disclosure statement
No potential conflict of interest was reported by the author(s).
Data availability statement
The data that support the findings of this study are available from the corresponding author, [Dr. Weijie Lu: [email protected]], upon reasonable request.
Notes
1 For more information, please refer to: https://www.census.gov/programs-surveys/cps/about.html.
2 CPS was not designed for utilization as a panel dataset (Madrian and Lefgren Citation2000). Each observation in CPS represents a distinct individual, and the data is cross-sectional in nature, providing a snapshot of stock market participation and related variables at a specific point in time.
3 The sample period is restricted by the information on immigrants’ country of origin, which is not available until the 1996 wave of the survey.
4 In the section “D. Comparing immigrants’ stock market participation to home country” of the Online Appendix, we compare the participation rates of immigrants with those of their home countries. Specifically, we gather cross-country stock market participation data from Giannetti and Koskinen (Citation2010) and present these alongside the participation rates of the immigrant populations in our CPS sample. The comparison is presented in Figure A1, which demonstrates that second-generation immigrants exhibit higher stock market participation rates compared to individuals in their home countries. This could be attributed to several interrelated factors that reflect the unique experiences and contexts of these immigrants. Please refer to the related discussions in the section D of the Online Appendix for further details.
5 Two recent studies use international data to compare household investment decisions (Christelis, Georgarakos, and Haliassos Citation2013; Badarinza, Campbell, and Ramadorai Citation2016), but their data sets cover only a limited number of countries.
6 OLS models are used throughout for ease of interpretation. We test the robustness of our results using probit models and find that the results are quantitatively similar. These results are available upon request.
7 In the Online Appendix, we present the regression results with standard errors clustered at the country-of-origin×year level, which can be found in Table A2.
8 In unreported results, we verify that our findings are robust to changes in the sample restriction criteria.
9 For more information, please refer to: https://share-eric.eu/.
10 For more information, please refer to: https://share-eric.eu/data/faqs-support (question 3.10 and 6.3).
11 In the Online Appendix, we present the regression results with standard errors clustered at the country-of-origin×year level, which can be found in Columns (1) and (2) of Table A3.
12 Households in the SHARE can choose to take the survey in any of the national languages of their country. We use this choice as a proxy for their primary language.
13 We do not include these characteristics in the benchmark analysis, because they are not available in the CPS data.
14 Many studies, particularly in the fields of sociology and (cross-cultural) psychology, have attempted to empirically test the emancipation theory of trust, mostly relying on cross-country evidence (e.g., Huff and Kelley Citation2003; Gheorghiu, Vignoles, and Smith Citation2009; Van Hoorn Citation2015). However, a causal relationship between the cultural dimension of individualism versus collectivism and trust has not been strictly established.
15 Because the GSS does not collect information on parents’ birthplace, we cannot distinguish between second- and higher-generation immigrants. Considering that higher-generation immigrants are likely to be less affected by cultural values in the country of origin, our evidence can be regarded as a lower bound of the effect of individualism on social trust.
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Notes on contributors
Yang Zhou
Yang Zhou (Phd from Tilburg University) is an associate professor in the Department of Finance at Economics and Management School, Wuhan University in China. His research interests include household finance, corporate finance, and climate finance.
Weijie Lu
Weijie Lu (PhD from the City University of Hong Kong) is an associate professor at Institute for Advanced Studies in Finance and Economics, Hubei University of Economics in China. Her research interests include household finance, corporate finance, and climate finance.
Geng Niu
Geng Niu (PhD from Tilburg University) is a full professor at the Research Institute of Economics and Management, Southwestern University of Finance and Economics in China. His research interests include household finance, financial market, corporate finance, innovation and entrepreneurship, and digital economy.
Ziqiong Xi
Ziqiong Xi is a PhD candidate from the PBC School of Finance, Tsinghua University in China. Her research interests include household finance and corporate finance.