Limited Stock Market Participation and the Equity Premium

17 Pages Posted: 17 Dec 2001

See all articles by Valery Polkovnichenko

Valery Polkovnichenko

Federal Reserve Board - Divison of Research and Statistics

Date Written: December 2001

Abstract

In this paper I study the implications of limited stock market participation for the equity premium. If all agents are receiving labor income and there is a small fixed cost of trading equities, then those agents with relatively low labor income choose not to participate in equity market. Because of limited risk sharing, the equity premium is higher, but only slightly higher, than in a model without frictions and full equity market participation. Thus, limited stock market participation does not resolve the equity premium puzzle.

Keywords: limited stock market participation, equity premium

JEL Classification: G12

Suggested Citation

Polkovnichenko, Valery, Limited Stock Market Participation and the Equity Premium (December 2001). Available at SSRN: https://ssrn.com/abstract=293830 or http://dx.doi.org/10.2139/ssrn.293830

Valery Polkovnichenko (Contact Author)

Federal Reserve Board - Divison of Research and Statistics ( email )

20th and C Streets, NW
Washington, DC 20551
United States

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