Road to stock market participation

Abstract

We study the impact of a national road construction program that brought access to previously unconnected pin codes in India on stock market participation. Using a unique dataset on the trading behavior of over 13 million individuals, we find that construction of new feeder roads to a pin code increases the number of new investors by 6.8% and the number of trades by 7.9%, and the effects are larger for rural vs. urban areas and for pin codes at intermediate levels of development. The stock market participation effects are largely driven by new bank branch openings within three years of the road construction, suggesting a financial inclusion channel. We also see greater effects for pin codes more distant from the nearest big city, greater portfolio diversification, and increased trading in companies located farther away, all suggesting an information channel.