Finance and Economics Discussion Series (FEDS)
February 2017 (Revised May 2023)
Credit Scores, Social Capital, and Stock Market Participation
Jesse Bricker and Geng Li
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.
Keywords: Credit scores, Social Capital, Stock market participation, Trust
DOI: https://doi.org/10.17016/FEDS.2017.008r1
PDF: Full Paper
Original Paper: PDF | Accessible materials (.zip) | Data (.zip)