Drawing from prior research on disease contagion, we estimate a transmission matrix to quantify the communication rate across investors, as well as how it varies with distances in social characteristics (such as age, income, and gender). In particular, exploiting cross-industry stock-financed mergers and acquisitions as a source of plausibly exogenous shocks to some investors’ portfolio composition and consequently, their information gathering activity, we trace out the path of “contagion” from these directly impacted investors (“patient zero”) to their neighbors. Further, we link the speed of communication to various social characteristics; quantitatively, our estimates imply that a ten-year difference in age, a one-step difference in income, and having a different gender lower the communication rate by 12%, 14%, and 32%, respectively.

Co-authors: Shiyang Huang (University of Hong Kong) & Byoung-Hyoun Hwang (Cornell University and Korea University)

JEL Classification: G11, G12, G14, G20

Key words: Word-of-Mouth, Speed of Communication, Household Investment