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Portfolio Inertia and Stock Market Fluctuations

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Author Info
Bilias, Yannis
Georgarakos, Dimitris
Haliassos, Michalis

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Abstract

Existing studies of household stock trading using administrative data offer conflicting results: discount brokerage accounts exhibit excessive trading, while retirement accounts show inactivity. This paper uses population-wide data from PSID and SCF to examine the overall extent of household portfolio inertia in participation and trading and its link to household characteristics and stock market movements. We document considerable portfolio inertia, linked to characteristics (e.g., low education or limited resources), but hardly to index movements. The downswing seems to have encouraged staying out, rather than getting out of the market. We find important differences in trading patterns of the small minority with brokerage accounts relative to the population; and small fractions of owners’ wealth in those accounts. Our findings strengthen the case for default options in retirement accounts and for funds with built-in trading provisions. While households did not overreact to the downswing through massive sales or exits, this seems more a manifestation of widespread inertia than of optimal response to stock market fluctuations.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7239.

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Date of creation: Mar 2009
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Handle: RePEc:cpr:ceprdp:7239

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Related research
Keywords: household finance; portfolio inertia; stock trading; Stockholding;

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Find related papers by JEL classification:
E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Luigi Guiso & Tullio Jappelli, 2006. "Information Acquisition and Portfolio Performance," CSEF Working Papers 167, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy. [Downloadable!]
    Other versions:
  2. Dimitrios Christelis & Dimitris Georgarakos & Michael Haliassos, 2008. "Economic Integration and Mature Portfolios," CSEF Working Papers 194, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy. [Downloadable!]
  3. Laurent E. Calvet & John Y. Campbell & Paolo Sodini, 2008. "Fight or Flight? Portfolio Rebalancing by Individual Investors," NBER Working Papers 14177, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Philippe Bacchetta & Eric van Wincoop, 2006. "Incomplete information processing: a solution to the forward discount puzzle," Working Paper Series 2006-35, Federal Reserve Bank of San Francisco. [Downloadable!]
    Other versions:
  5. Markus K. Brunnermeier & Stefan Nagel, 2006. "Do Wealth Fluctuations Generate Time-varying Risk Aversion? Micro-Evidence on Individuals' Asset Allocation," NBER Working Papers 12809, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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