Market Participation and Dividend Clienteles

Abstract:     
Market participation and asset allocation are intimately related investment decisions. Using data from the Consumer Expenditure Survey (CEX), and a two-step procedure initially proposed by Heckman (1977), I jointly model and estimate market participation and dividend preferences, and show that failure to account for them jointly could potentially bias standard models of dividend clienteles. The estimated coefficients prove that market frictions and behavioral biases combine to affect US households' market participation and dividend preferences. Overall, my findings bring new complexity to the identification of age- and income-based dividend clienteles documented in the literature, and offer a non-behavioral explanation to recent evidence that current consumption is more sensitive to dividends than to capital gains.

Keywords: market participation, dividend clienteles, household finance, CEX

JEL Classifications: G10, G19

Working Paper Series