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Uncovering asset market participation from household consumption and income

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  • Czellar, Veronika
  • Garcia, René
  • Le Grand, François

Abstract

We propose an asset pricing model featuring time-varying limited participation in both bond and stock markets and household heterogeneity. Households participate in financial markets with a certain probability that depends on their individual income and on asset market conditions. We use indirect inference to uncover individual asset market participation from individual consumption data and asset prices. Our model very accurately reproduces the proportions of stockholders in the Survey of Consumer Finances over three-year intervals, provides a reasonable estimate of stock market participation costs, and is able to price characteristic-based stock portfolios with the top decile of households identified as stockholders.

Suggested Citation

  • Czellar, Veronika & Garcia, René & Le Grand, François, 2025. "Uncovering asset market participation from household consumption and income," Journal of Econometrics, Elsevier, vol. 248(C).
    • Handle: RePEc:eee:econom:v:248:y:2025:i:c:s0304407624002124
    DOI: 10.1016/j.jeconom.2024.105867
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    More about this item

    Keywords

    Limited participation; Household-level consumption distribution; Heterogeneity; Indirect inference; Marginal propensity to consume; Stock market participation cost;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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