John Huck became interested in tracking people’s reactions to the stock market and economy while working at a Chicago investment bank during the Great Recession. When mass layoffs began in December 2008, he says, the stress was palpable for people who lost their jobs and for those who didn’t.
“That’s when I knew economic woes were closely tied to human behavior,” says Huck, who’s now an assistant professor of finance in the Lubar School of Business.
Huck’s recent research shows that stock market downturns may immediately increase the number of violent crimes, particularly domestic violence. But stock market gains also may increase violence among noninvestors.
He used daily reported crime data from 2,700 law enforcement agencies across the United States between 1991 and 2015. That 25-year period encompasses periods of ups and downs for investors and the U.S. economy in general.
Then, using high- or low-income locations as a proxy for investors and noninvestors, he correlated daily crime data for both classes of neighborhoods with same-day stock market performances. He even examined the kinds of crime committed, including domestic assaults and homicides.
His data showed that an increase in stock returns was associated with a decrease in violent crime for investor areas. However, noninvestor neighborhoods experienced more violent crime on days when investors prospered. The outcome suggests that people aren’t only concerned about their own finances, but also their position relative to others.
Huck was surprised to find the correlation between stock performance and noninvestors, who usually aren’t included in such studies. It’s easy to assume noninvestors are dormant players, he says. But the study shows that even if they don’t participate in the stock market, people are still passively exposed to its results through media reports.
“The takeaway is that volatile markets combined with inequality can be detrimental to society through increased crime,” he says, noting that the country’s wealthiest 1% owns more than the bottom 90%. “But it’s the instantaneous nature of the findings that really makes the study unique.”