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Structural estimation of stock market participation costs

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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 participation cost is about 4–6% of labor income; however, it varies substantially over consumers' life. The model successfully predicts the level of the observed participation rate and the increasing pattern of stock market participation over the consumers' life cycle.

Suggested Citation

  • Khorunzhina, Natalia, 2013. "Structural estimation of stock market participation costs," Journal of Economic Dynamics and Control, Elsevier, vol. 37(12), pages 2928-2942.
  • Handle: RePEc:eee:dyncon:v:37:y:2013:i:12:p:2928-2942
    DOI: 10.1016/j.jedc.2013.08.011
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    4. Robert Ostling & Erik Lindqvist & David Cesarini & Joseph Briggs, 2015. "Wealth and Stock Market Participation: Estimating the Causal Effect From Swedish Lotteries," 2015 Meeting Papers 806, Society for Economic Dynamics.
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    6. Briggs, Joseph & Cesarini, David & Lindqvist, Erik & Östling, Robert, 2021. "Windfall gains and stock market participation," Journal of Financial Economics, Elsevier, vol. 139(1), pages 57-83.
    7. Solomon Antwiagyei Kuffour & George Adu, 2019. "Financial Literacy, Trust and Stock Market Participation in Ghana," Economics Literature, WERI-World Economic Research Institute, vol. 1(2), pages 101-116, December.
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    10. Kartik B. Athreya & Felicia Ionescu & Urvi Neelakantan, 2015. "Stock Market Investment: The Role of Human Capital," Finance and Economics Discussion Series 2015-65, Board of Governors of the Federal Reserve System (U.S.).
    11. Sewon Hur & Christopher Telmer & Siqiang Yang, 2018. "Household Portfolio Accounting," 2018 Meeting Papers 1298, Society for Economic Dynamics.
    12. Thakurata, Indrajit, 2021. "Optimal portfolio choice with stock market entry costs and human capital investments: A developing country model," International Review of Economics & Finance, Elsevier, vol. 73(C), pages 175-195.
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    More about this item

    Keywords

    Household Finance; Stock Market Participation; Investor Heterogeneity; Dynamic Discrete Choice Models;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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