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Dynamic Stock Market Participation of Households

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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 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.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 35310.

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Date of creation: Nov 2011
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Handle: RePEc:pra:mprapa:35310

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Keywords: Portfolio Choice; Stock Market Participation; Dynamic Models; Discrete Choice Models; Panel Data;

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