There are large disparities between the achievements, behaviour and aspirations of children growing up in different neighbourhoods. This has contributed to the view that neighbourhoods can determine individuals' outcomes. Notably, in the long run these effects could lead to larger social inequality and reduce social mobility, which is why they have attracted much attention among researchers and policy makers alike. In fact, many area-based policy responses are predicated on the idea that a young person's outcomes can be causally linked to the characteristics of the childhood neighbourhood, and to the social interactions with children and adolescents who live around him/her. While economists and sociologists have proposed a number of theories to explain potential causal links between place of residence and socio-economic outcomes, empirical evidence has been largely inconclusive. This is because empirical neighbourhood effects research is complicated by two sets of problems. The first problem is that the observed correlation between children's outcomes and neighbourhood characteristics could just be a statistical artefact resulting from general income segregation. Secondly, there is ambiguity in the definition of what constitutes a neighbourhood. As a result, empirical studies have used very different spatial aggregations to delimit the unit of analysis. With these issues in mind, the authors take advantage of a very detailed and spatially disaggregated dataset to examine the existence of social interaction effects in neighbourhoods in England. More specifically, their goal is to answer the following questions: (1) To what extend are school test scores at ages 14 and 16 influenced by the academic quality and other characteristics of other children of similar age who live in the same neighbourhood?; and (2) To what extend are behavioural outcomes of children--such as attitudes towards school truancy, substance use and anti-social behaviour--affected by the academic achievement and other characteristics of children in the neighbourhood? The authors' initial results confirm the existence of a strong cross-sectional association between neighbourhood characteristics and children's outcomes. However, these findings cannot be interpreted as causal and mainly reflect a spurious correlation that arise because of individual sorting and neighbourhood unobserved attributes. In fact, once they control for pupil and family background unosbervables as well as neighbourhood fixed effects, their previously significant estimates become very close to zero and non-significant. In a nutshell, their main results are as follows: (1) There is no evidence that neighbours' characteristics have a causal effect on the cognitive outcomes of 14 to 16 year old children arising from social interactions and role models; and (2) There is weak evidence that the neighbourhood effects are causally linked to young people's behavioural outcomes. However, there is some interesting heterogeneity along the gender dimensions regarding attitudes towards school and anti-social behaviour. All in all, this evidence is in line with the most robust research in the field that identifies neighbourhood effects using randomised control-trials experiments such as the Movement to Opportunity intervention or the Gautreaux programme. Appended are: (1) Descriptive statistics before dropping mobile pupils and small neighbourhoods; (2) Additional results: change-in-change and unobservable effects estimates; (3) Selected descriptive statistics for pupils sampled by the LSYPE (aged 14 in 2004); (4) Population in the neighbourhood and mobility rates; and (5) Constant-cohorts dataset construction; three "main cohorts" and asymmetric peers. (Contains 11 tables, 5 figures and 18 footnotes.)