Stock Market Ownership Transitions
60 Pages Posted: 24 May 2017 Last revised: 26 Jan 2024
There are 2 versions of this paper
Stock Market Ownership Transitions
Income Risk and Stock Market Entry/Exit Decisions
Date Written: January 25, 2024
Abstract
A significant portion of U.S. households enters and exits investment accounts. Empirically, income and wealth changes are related to these transitions, with income changes not affecting the retired. We find that a life-cycle model with participation costs cannot match the observed ownership dynamics. An extension with a stock-market crash fits better the average participation rate and the ownership transitions of the middle-aged and retired, but not the ownership dynamics of the young, which is better captured by a model with elevated income risk. Overall, across the life-cycle, ownership transitions respond to wealth shocks in both model and data.
Keywords: Stock market transitions, trading costs, life-cycle portfolio decisions, rare disaster, income and wealth shocks
JEL Classification: D14, G11, G12
Suggested Citation: Suggested Citation