A New Participation Puzzle: Public Equity Ownership through the Financial Crisis

41 Pages Posted: 31 Aug 2019 Last revised: 8 Jul 2020

See all articles by James D. Paron

James D. Paron

University of Pennsylvania - Finance Department

Date Written: August 26, 2019

Abstract

I document two new facts in household portfolio choice. First, intertemporal changes in the distribution of wealth resulted in a decrease in public equity ownership after, but not during, the financial crisis. Second, holding fixed the level of wealth over time, the participation rate temporarily increased during the crisis, then returned to pre-crisis levels. These results can be explained by, and serve as strong evidence for, decreasing relative risk aversion and portfolio inertia. I discuss implications of these findings for existing models of participation, including participation costs and background risks.

Keywords: Stock market participation, Household finance, Portfolio choice, Financial crisis

JEL Classification: G01, G11

Suggested Citation

Paron, James, A New Participation Puzzle: Public Equity Ownership through the Financial Crisis (August 26, 2019). Available at SSRN: https://ssrn.com/abstract=3443258 or http://dx.doi.org/10.2139/ssrn.3443258

James Paron (Contact Author)

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States
2892590613 (Phone)
19104 (Fax)

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