Participation Constraints in the Stock Market: Evidence from Unexpected Inheritance Due to Sudden Death

45 Pages Posted: 7 Jan 2010 Last revised: 7 Mar 2011

See all articles by Steffen Andersen

Steffen Andersen

Copenhagen Business School - Department of Finance; CEPR

Kasper Meisner Nielsen

Copenhagen Business School - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: January 1, 2010

Abstract

We use a natural experiment to investigate the impact of participation constraints on individuals' decisions to invest in the stock market. Unexpected inheritance due to sudden deaths results in exogenous variation in financial wealth and allows us to examine whether fixed entry and ongoing participation costs cause non-participation. We have three key findings. First, windfall wealth has a positive effect on participation. Second, the majority of households do not react to sizeable windfalls by entering the stock market, but hold on to substantial safe assets - even over longer horizons. Third, the majority of households inheriting stock holdings actively sell the entire portfolio. Overall, these findings suggest that participation by many individuals is unlikely to be constrained by financial participation costs.

Keywords: Stock Market Participation, Household Finance, Portfolio Choice, Sudden Death, Inheritance

JEL Classification: D14, G11

Suggested Citation

Andersen, Steffen and Nielsen, Kasper Meisner, Participation Constraints in the Stock Market: Evidence from Unexpected Inheritance Due to Sudden Death (January 1, 2010). Available at SSRN: https://ssrn.com/abstract=1531664 or http://dx.doi.org/10.2139/ssrn.1531664

Steffen Andersen

Copenhagen Business School - Department of Finance ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

CEPR ( email )

London
United Kingdom

Kasper Meisner Nielsen (Contact Author)

Copenhagen Business School - Department of Finance ( email )

A4.17 Solbjerg Plads 3
Copenhagen, Frederiksberg 2000
Denmark

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