The relative impact of innate skills and acquired attributes on stock market participation

In this paper, we investigate to what extent innate skills are associated with stock market participation as compared to attributes that can be learned or acquired. Using data from the Understanding America Study panel, we systematically examine the role that both cognitive and non-cognitive skills play in the decision to enter or forego the equity market. In this context, cognitive skills are measured by survey-based cognitive skills scores, while non-cognitive skills are measured through a combination of survey-based conscientiousness and emotional stability scores. We assess the extent to which these innate skills operate indirectly through observable acquired attributes such as financial literacy, stock return literacy, education, and income. We find evidence that stock market entry is both directly and indirectly (via the acquired attributes) associated with non-cognitive skills. Our results suggest that a substantial portion of the beneficial traits related to SMP can be learned or acquired. For robustness, we also analyze the effect of innate skills on the dollar amount invested, finding that the impact appears to be fully mediated by acquired attributes.