Debt and Stock Market Participation

22 Pages Posted: 19 Mar 2021 Last revised: 12 Aug 2021

Date Written: January 18, 2021


Nearly all empirical tests of stock market participation employ either wealth (assets less debt) or assets as measures of participation costs. The former implicitly assumes that a $1 increase in assets and a $1 decrease in debt equally impact stock market participation. The latter implicitly assumes debt has no impact on participation. I hypothesize that debt can capture participation costs, behavioral factors (impulsivity and moral licensing), and risk aversion. As a result, the relation between debt and stock market participation is an empirical question. Consistent with debt capturing both participation costs and behavioral factors, and inconsistent with the implicit assumption in the literature, $1 increase in debt has about twice the impact as a $1 decrease in assets. The relation between debt and stock market participation also helps explain why wealth continues to predict stock market participation even among the wealthiest households.

Keywords: Household Finance, Behavioral Finance, Stock Market Participation Puzzle, Debt

JEL Classification: G02, G11, R20

Suggested Citation

Jones, Scott, Debt and Stock Market Participation (January 18, 2021). Available at SSRN: or

Scott Jones (Contact Author)

The University of Arizona ( email )

Eller College of Management
The University of Arizona
Tucson, AZ 85721
United States


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