Instiutional Confidence, Sociability and Stock Market Participation

Abstract

This article investigates the relationship between both confidence in institutions and sociability for stock market participation in India. We measure sociability as a construct which refers to non-market associations or activities, such as customs, traditions, and reciprocity, that have a bearing on the conduct of societies. Using the India Human Development Survey-II (IHDS-II) 2012 household survey data, we construct a measure of sociability as captured by memberships in societies and network groups to estimate their impact on the likelihood of a household’s stock market investment. The variables for confidence in institutions are categorical responses from the household level survey on confidence in the following: Politicians, Police, Military, Banks. Findings show that confidence in the Police (law enforcement) and sociability increases the likelihood of stock market investment. Both LPM estimates and Logit model Average Marginal effects indicate “Confidence in Police to enforce the law” increases the likelihood of stock market participation by 0.8-0.9 percent and “Sociability” as measured by a household having a member in an association increases the likelihood of stock market participation by 0.8-0.9 percent. Policymakers may be able to increase domestic investment via financial market participation by implementing policies to increase confidence in law enforcement and by increasing household involvement in specific social groups that our research finds having a significant positive effect on the likelihood of households’ purchase of stocks and bonds.