Abstract:Do language skills affect investment decisions? This paper 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.

  Key words:Language skills, Stock market participation, Immigrants, Information costs, Social trust

  This paper was published online in March 2022 in Journal of Financial and Quantitative Analysis, A class journals of School of Economics and Management of Wuhan University. Xu Gan is a doctoral student majoring in finance at School of Economics and Management, Wuhan University.