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Inheritance and Stockholding: The Role of Expectations

Author

Listed:
  • Luik Marc-André
  • Salland Jan

    (Chair of Political Economy and Empirical Economics, Helmut Schmidt University, University of the German Federal Armed Forces, Hamburg, Germany)

Abstract

This paper uses data from the Health and Retirement Study to investigate the role of inheritances for stockholding. Individual heir fixed-effects estimates show that an inheritance receipt increases subsequent stock market participation. The respective magnitude of this shift is higher for large and fully anticipated receipts, whereas it seems to be largest for fully but larger-than-expected transfers. Generally, our effects are driven by households entering the stock market. Also, a less pre-inheritance liquidity constrained household shows higher post-inheritance stock ownership probability. This suggests, inheritance size as well as receipt and size anticipation are determinants for stockholding. In the context of stock market participation, our results highlight considerable heir and transfer heterogeneity which can have important implications for bequest taxation and economic welfare. By means of the intergenerational transmission of inequality and socio-economic status via the ‘wealth channel’, households not only benefit from transfer receipt but also from later capital gains, due to stock market participation.

Suggested Citation

  • Luik Marc-André & Salland Jan, 2021. "Inheritance and Stockholding: The Role of Expectations," Review of Economics, De Gruyter, vol. 72(1), pages 1-28, April.
    • Handle: RePEc:lus:reveco:v:72:y:2021:i:1:p:1-28:n:2
    DOI: 10.1515/roe-2021-0009
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    More about this item

    Keywords

    expectations; inheritance; portfolio choice; investor behavior; G11; D14; D31;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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