When Paper Losses Get Physical: Domestic Violence and Stock Returns

Abstract

We study a negative externality of the stock market on families. We find a significant negative relationship between the local stock market return at the state level during the week and the incidence of domestic violence during the weekend. This relationship is robust to controlling for local economic conditions at the state-month level and only exists for the concurrent week stock returns. These findings suggest that wealth shocks caused by the stock market can affect stress levels within families, escalate arguments, and trigger violent behavior. The effect is attributable to the middle part of the regional income distribution, where both the stock market participation of households and the prevalence of domestic violence are likely to be adequately high to generate substantial aggregate effects. Finally, the effect exists only during periods of low investor sentiment, when economic stress levels are likely to be higher, and disappears in times of high sentiment.