The Social Construction Of Prices – The Impact Of Culture, Networks and Institutional Rules On Stock Quotations

Prices in market economies are based on supply and demand processes. I challenge this common economic sense by comparing stock price movements and their causes in the US and Germany, arguing that stock valuations also depend on the embeddedness of trading in culturally constrained frames of meaning, corporation networks and institutionalized rules. Economic sociology is well aware of such social forces. Still, sociological investigation of price formation lacks both theoretical integration and empirical evidence for how different types of market conditions interact and influence prices.

Taking sociological field theory as a starting point I combine three independent strings of price formation explanations, considering the simultaneous influence and interaction of institutional regulations, network positions and cultural frames. Empirically, I test this field theory of financial markets by comparing the setting of US and German stock prices. First, the historical tradition of financial markets and the longitudinal development of macroeconomic structures are discussed. Secondly, I investigate correlation networks of stock listed companies using social network analysis. I am particularly interested in the shifts occurring in the network ecology after the financial crisis and the subsequent changes in each systems' stability. Finally, the change of stock repurchase laws in Germany in 1998 delivers an 'experimental' setting for different types of rule based information trading before and after the legislation reform. Applying Event Study methods the short- and longterm influence of repurchase plans in the US and Germany is compared.

Different patterns of stock price volatility are revealed, depending on culture, networks and rules. Briefly summarized, stock valuations depend on the cultural understanding of households invest money (market vs. bank based investments), on the network topology of stock markets (centralized vs. decentralized), and on the national peculiarities of firms, that foster (USA) or impede (Germany) the implementation and success of repurchase plans.