Dynamic Stock Market Participation of Households

Khorunzhina, Natalia (2011): Dynamic Stock Market Participation of Households.

Abstract

This paper develops and estimates a dynamic model of stock market participation, where consumers’ decisions regarding stock market participation are influenced by participation costs. The practical significance of the participation costs is considered as being a channel through which financial education programs can affect consumers’ investment decisions. Using household data from the Panel Study of Income Dynamics, I estimate the magnitude of the participation cost, allowing for individual heterogeneity in it. The results show the average stock market articipation cost is about 5% of labor income; however, it varies substantially over consumers’ life. The model successfully predicts the level of the observed articipation rate and the increasing pattern of stock market participation over the consumers’ life cycle.

• Item Type: MPRA Paper
• Language: English
• Keywords: Portfolio Choice, Stock Market Participation, Dynamic Models, Discrete Choice Models, Panel Data
• Subjects: G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice ; Investment Decisions; D - Microeconomics > D1 - Household Behavior and Family Economics > D12 - Consumer Economics: Empirical Analysis; D - Microeconomics > D9 - Intertemporal Choice > D91 - Intertemporal Household Choice ; Life Cycle Models and Saving; C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C33 - Panel Data Models ; Spatio-temporal Models

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