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Taxpayer Protection Initiative. Contact Us. Money can be used in a number of different ways. Your savings account provides you a safe place a bank to keep your money and gain interest on it while you are not using that money.
But the money in your savings account does not sit in a giant vault in the bank, it is used to help other people buy homes and cars and go to college. When the bank makes a loan, it is drawing on all the money people have put into it. In this way the bank acts as a financial market place for money. A bank loan can help fuel growth but one day it will have to be paid back, with interest a fee to cover the cost of borrowing.
Money is also used by people to make investments. When you invest in a company you are giving them a loan when you buy bonds or buying a part of that company when you buy stock. When you invest in a company it may use the money to get bigger, purchase equipment, increase advertising, hire new people, research new products, or any number of other business activities.
Businesses come in many different sizes and shapes. A business owned and operated by one person is called a sole proprietorship. A sole proprietorship is easy to form and all the profits go to the owner. But a sole proprietorship may not have enough money called capital to grow or the owner may be concerned that he or she carries all the risks of operating a business. A sole proprietor may join with other people to form a partnership, owned by two or more people. There may be more money to invest now, but the owners have to share decision making power and cash may still be limited.
A partnership can also limit risk by making the business itself a legal entity. This way the business may be sued but the partners homes and money outside the business will be safe.
A company that still wants to grow has several choices. Its first option is to use its profits for capital -- called reinvestment. A company, like an individual, can also get money by borrowing from a bank. Like an individual though, the bank loan has to be paid back with interest, and the bank may limit how much it will lend a business according to the ability of the company to pay it back.
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Weisfeld-Spolter, S. Integrating affect, cognition, and culture in Hispanic financial planning. Previous research about this problem has obtained some conclusions [ 1 — 3 ]. Generally, there are three kinds of factors: first, the effects come from personal and family background. The second kind of factors is about wealth and income [ 7 ]. Bertaut and Starr, Moskowita and Vissing all find that wealth has a positive effect on equity participation [ 8 , 9 ].
For example, Grinblatt, Keloharju, and Linnainmaa find that the IQ has monotonous positive correlation with the stock market participation [ 11 ]. Klapper et al. The above investigations of various factors affecting stock market participation are mainly about individual factors and do not involve the interactive behavior between individuals.
Some scholars have studied this problem, and they all find that people who have social interaction with friends or neighbors can increase the possibility of stock market participation [ 18 ].
Brown et al. Dierkes et al. Other scholars further explain how social interaction affects the stock market participation. For example, Hong et al.
Their empirical results also prove that the individuals who take part in social interaction will be more likely to hold stocks. Chang believes that social behavior will obviously produce the herding behavior, which has an impact on the stock market participation [ 23 ].
Chinese scholars do not put enough attention on this problem yet, and their research mainly depends on some regional data. Li uses the survey data of residents in Guangdong province in as research sample and builds a linear probit model to analysis of the correlation between social interaction and stock market participation [ 24 ]. His result shows that social interaction and the trust will promote the stock market participation, and he also finds that social interaction will significantly encourage residents who have lower level of education to participate in stock market.
He also thinks that the reason why social interaction plays the positive role of individual investment is mainly because of the endogenous regulatory mechanisms of social interaction.
Zhou et al. However, there are at least three aspects of defects in the above researches. First, the domestic and foreign scholars have only studied how the traditional ways of social interaction influence the stock market participation, and they do not consider that the modern social interaction may also affect stock market participation.
With the development of human society and the progress of science and technology, there are more and more ways existed to interact with people. Compared with traditional face-to-face interaction, modern ways of social interaction tend to use the advanced technology, such as telephone. People involved in the stock market have different risk preferences [ 27 ] and also have different ways of stock market participation.
Therefore, investigating the activeness of stock market participation is a good way to deepen the study of stock market participation. Third, in the case of China, the research samples of the existing research literature are regional data, not including the nationwide data, which may cause the bias in the data selection. So, it is necessary to adopt a more comprehensive sample.
In this paper, the measures of this behavior not only involve the common measure of stock market participation but also introduce a new measure which can depict the activeness of participation, which can help us to understand the stock market participation behavior better. The rest of the paper is organized as follows. Section 2 introduces the selection and dispose of the sample. Section 3 includes model specification and empirical analysis.
The last section is conclusion. This paper selects two different measures of stock market participation. If the respondents hold stocks in the past year, ; otherwise,. In stock market, as we know, there are some investors holding stocks for a long time but not trading frequently. On the other hand, there are also some investors who are likely to trade frequently. If the respondents trade their stock in the past month, ; otherwise,.
In order to distinguish these two measures, we define as stock market participation and as activeness of stock market participation. To introduce our measures of social interaction, we have compared the measures in ancient literatures and focused on more related questions in the survey, which makes our measures more credible. This paper selects the following 11 variables, and each variable with its corresponding question is as follows: : interacted with friends; : played ma-jong, played chess, played cards, or went to community club; : provided help to family, friends, or neighbors who do not live with you and who did not pay you for the help; : went to a sport, social, or other kind of club; : took part in a community-related organization; : done voluntary or charity work; : cared for a sick or disabled adult who does not live with you and who did not pay you for the help; : attended an educational or training course; : does your residence have a telephone connection?
So this paper considers both ways of the traditional and modern social interaction and studies how they impact the stock market participation behavior.
This paper also uses the controlled variables in our research [ 4 , 22 , 28 ]. The wealth variable in this paper is composed of several items, including personal cash holdings, personal savings, personal bonds holdings, personal stocks holdings, and personal funds holding. Finally we eliminate the outliers and missing value and acquire a sample including questionnaires. The means and correlations of these variables are shown in Table 1.
As seen in Table 1 , the mean of equals 0. In the subsequent empirical analysis, we will take as the main proxy indicator of traditional social interaction. Among the three proxy variables of modern social interaction, the mean of is the highest, which equals 0.
In Table 1 , we also find the positive correlations between all of eleven measures of social interaction, indicating that all of these variables in this paper are consistent. All the values of the correlation between the dependent and independent variables are positive and most of them are statistically significant, and we also can get the preliminary conclusion: there is a positive correlation between social interaction and stock participation.
Some scholars, such as Hong et al. In this section, we make a simple test to have a further study through grouping analysis.
The results of the grouping analysis are shown in Table 2. As shown in Table 2 , the average value of is higher in each social group than in corresponding nonsocial group, and most of these differences are statistically significant, no matter how grouping the respondents, suggesting that there is a higher participation rate in social group than in nonsocial group and both the traditional and modern ways of social interaction will affect the stock market participation.
When grouping by the main proxy variable of traditional social interaction, , the change of the mean of is very significant, suggesting that respondents who often interact with friends are more likely to participate in the stock market.
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