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

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.