Markets & Trade

A New Kind of Peace Studies: The Stock Market

When Israelis invest in stocks, they are more likely to support peace negotiations, new Stanford research shows.

March 27, 2018

| by Edmund L. Andrews


A man stands in front of an electronic board displaying market data at the Tel Aviv Stock Exchange, in Tel Aviv, Israel. | Reuters/Baz Ratner

Scholars found a surprising connection between peace policies and the stock market. | Reuters/Baz Ratner

More than 200 years ago, the philosopher Charles Montesquieu argued that people are much less likely to wage war if they rely on each other to make money.

“Peace is the natural effect of trade,” he wrote. “If one has an interest in buying, the other has an interest in selling; and thus their union is founded on mutual necessities.”

Now, a rigorous new study in the Middle East suggests that Montesquieu may not have realized the half of it.

The new study, by Saumitra Jha at Stanford Graduate School of Business and Moses Shayo at Hebrew University, found that giving Israelis a short, though intensive, opportunity to trade stocks made them markedly more eager to negotiate a peace with Palestinians. People became less likely to vote for Benjamin Netanyahu’s harder-line Likud Party, more supportive of a two-state solution with Palestine, and more willing to make concessions to get a deal.

Perhaps more surprising, that heightened support for peace had staying power. Even though the stock-trading study lasted only seven weeks, and involved modest sums of money, the change in political attitudes was still apparent one year later.

“This was really a story about learning,” says Jha. “When people began investing in stocks, they became engaged and started to learn. They could see that stock prices rose if peace negotiations were re-starting and that prices went down if the peace process was collapsing. It changed their attitudes toward the peace process and their voting preferences.”

The Market’s Power

Financial markets have always been spooked by worries about war and rallied at new prospects for peace.

That’s especially true for Israel. The Rand Corporation recently estimated that a two-state solution would add $123 billion to Israel’s economy and $50 billion to Palestine’s economy over 10 years. A return to widespread conflict, by contrast, would reduce Israel’s gross domestic product by $250 billion and Palestine’s GDP by $46 billion over the same period.

Most people, however, have very little direct financial exposure to those risks because they aren’t active investors or business owners.

Jha, an associate professor of political economy, wanted to see what would happen to Israelis’ attitudes if they were actively trading shares in the stock market.

Timing was key: The program began shortly before Israel’s 2015 elections and ended shortly afterward.


Telling people `to give peace a chance’ can work sometimes, but a smarter way may be to give people a small stake to invest in the stock market and see the benefits of peace for themselves
Saumitra Jha

Jha and Shayo gave more than 1,000 Israelis a chance to buy and trade up to $100 worth of stock. About 400 initially received Israeli stock. Another 400 received Palestinian shares, and 200 received vouchers to invest in an index fund. Another 300 Israelis, recruited as a “control’’ group, didn’t do any investing but were surveyed about their political views.

To encourage as much learning as possible, the researchers pushed the investing participants to trade some of their shares once a week.

Meanwhile, the researchers regularly surveyed the participants about their voting preferences and their views about peace negotiations.

At the outset, the distribution between hawks and doves was about the same for both the group that traded stock and the group that didn’t.

By the end of the study, however, the differences were dramatic. The people who traded stocks became about 5 percentage points more likely to vote for Israel’s pro-peace opposition parties and 5 percentage points less likely to vote for the Likud Party. Likewise, the people who traded shares became more supportive of re-starting peace negotiations and more willing to make concessions.

The biggest shifts were among people who hadn’t traded stocks before, Jha notes. That’s because the experienced investors had been comparatively supportive of peace negotiations all along. The novice investors started out somewhat more hawkish, but they became more eager for peace as they became more financially aware.

Interestingly, Jha and Shayo believe that people didn’t really change their political views for pocketbook reasons. For one thing, their stock holdings were too small to make a difference. Beyond that, though, participants remained pro-peace even if they were divested of all their stock before the election.

To Jha, that says something important about educating about peace: People are much more willing to see the value of peace if they can reach conclusions on their own. “Telling people `to give peace a chance’ can work sometimes,” he says, “but a smarter way may be to give people a small stake to invest in the stock market and see the benefits of peace for themselves.”

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