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Language Skills and Stock Market Participation: Evidence From Immigrants

Published online by Cambridge University Press:  11 March 2022

Xu Gan ,
Frank M. Song  and
Yang Zhou
Xu Gan
Affiliation:
Huazhong University of Science and Technology School of Management xgan@hust.edu.cn
Frank M. Song
Affiliation:
Wuhan University Economics and Management School fmsong@whu.edu.cn
Yang Zhou*
Affiliation:
Wuhan University Economics and Management School
*
y.zhou@whu.edu.cn (corresponding author)
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Abstract

Do language skills affect investment decisions? This article addresses this question by identifying the effect of English proficiency on the stock market participation of immigrants in the United States and Australia. To establish causality, we construct an instrumental variable for English proficiency by exploiting the phenomenon that younger children acquire languages more easily than older children. We find that English proficiency has a significant positive effect on stock ownership among immigrants in both countries. Moreover, we provide evidence that a reduction in information costs and an increase in trust may serve as the mechanisms underlying the language ability effect.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 57 , Issue 8 , December 2022 , pp. 3281 - 3312
Copyright
© The Author(s), 2022. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

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Footnotes

We thank an anonymous referee, Steffen Andersen (a referee), and Jennifer Conrad (the editor) for their constructive comments. We also thank Allaudeen Hameed, Geng Niu, and Vincent Yao, and conference participants at the 2020 Financial Management Association Annual Meeting, 2021 AFA Ph.D. Poster Session, and 2021 Financial Markets and Corporate Governance Conference for their helpful suggestions and comments. Gan acknowledges the financial support received from Fundamental Research Funds for the Central Universities. Song acknowledges the financial support received from the National Natural Science Foundation of China (Grant No. 71850004) and the National Social Science Foundation of China (Grant No. 20&ZD072). Zhou acknowledges the financial support received from the National Natural Science Foundation of China (Grant No. 71703114), National Social Science Foundation of China (Grant No. 20&ZD105), Humanities and Social Science Foundation of the Ministry of Education of China (Grant No. 21YJC790172), and Fundamental Research Funds for the Central Universities. All errors are our own.

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