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Participation Constraints in the Stock Market Evidence from Unexpected Inheritance due to Sudden Death

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Author Info

  • Andersen, Steffen

    ()
    (Department of Economics, Copenhagen Business School)

  • Meisner Nielsen, Kasper

    (Hong Kong University of Science and Technology)

Abstract

We use a natural experiment to investigate the impact of participation constraints on individuals' decisions to invest in the stock market. Unexpected inheritance due to sudden deaths results in exogenous variation in financial wealth and allows us to examine whether fixed entry and ongoing participation costs cause non-participation. We have three key findings. First, windfall wealth has a positive effect on participation. Second, the majority of households do not react to sizeable windfalls by entering the stock market, but hold on to substantial safe assets—even over longer horizons. Third, the majority of households inheriting stock holdings actively sell the entire portfolio. Overall, these findings suggest that participation by many individuals is unlikely to be constrained by financial participation costs.

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File URL: http://openarchive.cbs.dk/cbsweb/handle/10398/8169
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Bibliographic Info

Paper provided by Copenhagen Business School, Department of Economics in its series Working Papers with number 03-2010.

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Length: 43 pages
Date of creation: 01 Mar 2010
Date of revision:
Handle: RePEc:hhs:cbsnow:2010_003

Contact details of provider:
Postal: Department of Economics, Copenhagen Business School, Solbjerg Plads 3 C, 5. sal, DK-2000 Frederiksberg, Denmark
Phone: 38 15 25 75
Fax: 38 15 34 99
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Web page: http://www.cbs.dk/departments/econ/
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Related research

Keywords: Stock Market Participation; Household Finance; Portfolio Choice; Sudden Death; Inheritance.;

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Cited by:
  1. Andersen, Steffen & Nielsen, Kasper Meisner, 2012. "Ability or Finances as Constraints on Entrepreneurship? Evidence from Survival Rates in a Natural Experiment," Working Papers 03-2012, Copenhagen Business School, Department of Economics.
  2. Tabea Bucher-Koenen & Michael Ziegelmeyer, 2011. "Who lost the most? Financial Literacy, Cognitive Abilities, and the Financial Crisis," BCL working papers 54, Central Bank of Luxembourg.
  3. Khorunzhina, Natalia, 2011. "Dynamic Stock Market Participation of Households," MPRA Paper 35310, University Library of Munich, Germany.

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