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Why have U.S. households increasingly relied on mutual funds to own equity?

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  • Duca, John V.

    (Federal Reserve Bank of Dallas)

Abstract

Since the early 1990s, U.S. households have increasingly used mutual funds to own equity assets. Results indicate that this owes to two developments over the period 1970–2002 that are broadly consistent with the implications of Heaton and Lucas’ (2000) model of equity participation. In that model, lower asset transfer costs and lower income risk can induce equity investing by less wealthy households, who—in practice and owing to diversification considerations—are more apt to indirectly hold stocks through mutual funds. The first factor is a pronounced decline in equity mutual fund loads, which are highly negatively correlated with the overall stock ownership rate, which has doubled owing to a rising percentage of households that own stocks only through mutual funds. The second is a general improvement since the 1970s in household expectations about future family financial conditions that may have induced households at the margin to become shareholders.

Suggested Citation

  • Duca, John V., 2004. "Why have U.S. households increasingly relied on mutual funds to own equity?," Working Papers 0403, Federal Reserve Bank of Dallas.
  • Handle: RePEc:fip:feddwp:04-03
    Note: Published as: Duca, John V. (2005), "Why Have U.S. Households Increasingly Relied on Mutual Funds to Own Equity?" Review of Income and Wealth 51 (3): 375-396.
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    Cited by:

    1. Duca, John V., 2013. "Did the commercial paper funding facility prevent a Great Depression style money market meltdown?," Journal of Financial Stability, Elsevier, vol. 9(4), pages 747-758.
    2. Anderson, Richard G. & Bordo, Michael & Duca, John V., 2017. "Money and velocity during financial crises: From the great depression to the great recession," Journal of Economic Dynamics and Control, Elsevier, vol. 81(C), pages 32-49.
    3. Duca, John V., 2006. "Mutual funds and the evolving long-run effects of stock wealth on U.S. consumption," Journal of Economics and Business, Elsevier, vol. 58(3), pages 202-221.
    4. Duca, John V., 2014. "What drives the shadow banking system in the short and long run?," Working Papers 1401, Federal Reserve Bank of Dallas.
    5. Duca, John V., 2016. "How capital regulation and other factors drive the role of shadow banking in funding short-term business credit," Journal of Banking & Finance, Elsevier, vol. 69(S1), pages 10-24.

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