Stock Market Participation and Portfolio Shares Over the Life-Cycle

99 Pages Posted: 22 Mar 2021 Last revised: 6 Feb 2022

See all articles by Francisco Gomes

Francisco Gomes

London Business School

Oksana Smirnova

London Business School

Date Written: March 15, 2021

Abstract

We estimate the life-cycle profile of stock market participation and risky portfolio share.
Our identification approach does not require any assumptions on time or cohort effects, thus
avoiding the classical identification problem. We find that stock market participation is
a hump-shaped function of age, while the conditional risky share is flat until mid-life and
decreases afterwards. We investigate the economic mechanisms driving this behavior, and find empirical support for stock market participation costs, decreasing relative risk aversion,
human capital as a close substitute for bonds, and background risks. We conclude with a
structural life-cycle model that closely replicates these patterns.

Keywords: Life-cycle asset allocation, stock market participation, life-cycle models, human capital

JEL Classification: G5, G11, D14, D15.

Suggested Citation

Gomes, Francisco and Smirnova, Oksana, Stock Market Participation and Portfolio Shares Over the Life-Cycle (March 15, 2021). Available at SSRN: https://ssrn.com/abstract=3808350 or http://dx.doi.org/10.2139/ssrn.3808350

Francisco Gomes (Contact Author)

London Business School ( email )

Finance Department
Sussex Place - Regent's Park
London NW1 4SA
United Kingdom

HOME PAGE: http://sites.google.com/view/francisco-gomes/home

Oksana Smirnova

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

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