Causal Evidence on Regular Internet Use and Stock Market Participation
86 Pages Posted: 14 Mar 2012 Last revised: 30 Dec 2013
Date Written: December 23, 2013
Stock market participation rates have been quite stable or even dropped over the last years although more households regularly use the Internet. This observation contradicts earlier scientific evidence that the advent of the Internet increased stock market participation rates. Based on representative data from household panel surveys and with the help of two instruments for Internet usage we show that the Internet indeed has a positive and causal effect on stock market participation. Additionally, we present a solution of the puzzling observation above by showing that the positive effect of Internet usage on stock market participation is driven by households with a high degree of financial literacy and new Internet adopters were financially illiterate on average in recent years.
Keywords: Stock market participation, transaction costs, Internet, financial literacy
JEL Classification: D14, G11
Suggested Citation: Suggested Citation