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Stock market optimism and participation cost: a mean-variance estimation

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  • Monica Paiella
  • Andrea Tiseno

Abstract

We use household data to estimate the cost of participating to financial markets and the cross sectional dispersion of stock market optimism. Our analysis is based on a mean-variance framework, within which we derive structural decision rules for individual composition of the risky assets portfolio to be efficient, as function of both the amount to invest and the optimism about excess return of stocks over bonds. Exploiting the observed heterogeneity in risky asset holdings, we identify both the fixed cost of stock market participation and the dispersion of optimism about excess return. Using the Italian Survey of Household Income and Wealth we estimate a fixed cost of participating to the stock market of about 150 euro per year and a standard deviation of 30% in the optimism about excess return

Suggested Citation

  • Monica Paiella & Andrea Tiseno, 2004. "Stock market optimism and participation cost: a mean-variance estimation," Econometric Society 2004 Latin American Meetings 239, Econometric Society.
  • Handle: RePEc:ecm:latm04:239
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    References listed on IDEAS

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    Cited by:

    1. Alessandro Bucciol, 2006. "The Roles of Temptation and Social Security in Explaining Individual Behavior," "Marco Fanno" Working Papers 0032, Dipartimento di Scienze Economiche "Marco Fanno".
    2. Panova, Anna (Панова, Анна), 2017. "Decision Making Mechanisms at University [Механизмы Принятия Решений В Университете]," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 2, pages 132-151, April.

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    More about this item

    Keywords

    heterogeneous household portfolios; mean-variance frontier; participation cost; expectation error;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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