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The Participation Reversal Puzzle

Author

Listed:
  • Federico Mainardi

    (Columbia University - Columbia Business School, Finance)

  • Roxana Mihet

    (Swiss Finance Institute - HEC Lausanne)

  • Laura Veldkamp

    (Columbia University - Columbia Business School; National Bureau of Economic Research (NBER))

Abstract

Risky-asset participation rose in the 1990s, then reversed after the mid-2000s despite continuing declines in financial technology costs. We explain this reversal by separating access costs from data costs. Lower access costs expand participation, but cheaper scalable data lets wealthy investors acquire more information, bid up prices, and reduce risk-adjusted returns for marginal, uninformed households. Using SCF and Addepar portfolio data, we document the model’s crosssectional mechanisms: middle-wealth households exited, while informed investors earned higher returns and held riskier portfolios. Quantitatively, technological change accounts for 49% of the post-2007 participation reversal and explains the post-Covid rise.

Suggested Citation

  • Federico Mainardi & Roxana Mihet & Laura Veldkamp, 2026. "The Participation Reversal Puzzle," Swiss Finance Institute Research Paper Series 26-42, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2642
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    File URL: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=6730465
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    Keywords

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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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