What are the aggregate and distributional consequences of the relationship between an individual’s social network and financial decisions? Motivated by several well-documented facts about the influence of social connections on financial decisions, we build and calibrate a model of stock market participation with a social network that emphasizes the interplay between connectivity and network structure. Since connections to informed agents influence peers through utility and learning, there is a pivotal role for homophily. An increase in the average number of connections raises the average participation rate, mostly due to richer agents. Higher homophily benefits richer agents by creating clusters where information spreads more efficiently. We also show that peer effects in participation costs is crucial for matching stock market participation among poorer agents. Finally, we provide empirical evidence consistent with the importance of connectivity and sorting.
Journal of Economic Dynamics and Control, Vol. 183, 105242,
2026
