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Structural estimation of stock market participation costs

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  • Khorunzhina, Natalia

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 participation cost is about 4–6% of labor income; however, it varies substantially over consumers' life. The model successfully predicts the level of the observed participation rate and the increasing pattern of stock market participation over the consumers' life cycle.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 37 (2013)
Issue (Month): 12 ()
Pages: 2928-2942

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Handle: RePEc:eee:dyncon:v:37:y:2013:i:12:p:2928-2942

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Web page: http://www.elsevier.com/locate/jedc

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Keywords: Household Finance; Stock Market Participation; Investor Heterogeneity; Dynamic Discrete Choice Models;

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