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The Psychological Externalities of Investing: Evidence from Stock Returns and Crime

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  • John R Huck

Abstract

This paper investigates the psychological effects from stock market returns. Using an FBI database of over 55 million daily reported crime incidents across the United States, crime is proposed as a measure of psychological well-being. The evidence suggests that stock returns affect the well-being of not only investors but also noninvestors. Specifically, a contemporaneous negative (positive) relationship between daily stock market returns and violent crime rates is found for investors (noninvestors). A similar relationship is also found between local earnings surprises and violent crime. The contrasting relationships for investors and noninvestors suggests that relative wealth may influence well-being.

Suggested Citation

  • John R Huck, 2024. "The Psychological Externalities of Investing: Evidence from Stock Returns and Crime," The Review of Financial Studies, Society for Financial Studies, vol. 37(7), pages 2273-2314.
    • Handle: RePEc:oup:rfinst:v:37:y:2024:i:7:p:2273-2314.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhad090
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    More about this item

    Keywords

    G12; G40; K42;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G40 - Financial Economics - - Behavioral Finance - - - General
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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