Understanding Japanese Household Portfolios

56 Pages Posted: 26 Apr 2021 Last revised: 5 May 2021

See all articles by Kosuke Aoki

Kosuke Aoki

University of Tokyo

Alexander Michaelides

Imperial College Business School; Centre for Economic Policy Research (CEPR)

Kalin Nikolov

European Central Bank (ECB)

Date Written: May 5, 2021


Why do Japanese households hold so few stocks? We use a quantitative life-cycle portfolio choice model to argue in favour of two main explanations. First, households have a very low level of trust in the stock market due to Japan's history of poor corporate governance. Second, stock returns to individual stockholders have been low. Before 1990, this was due to excessive fees and commissions. Since the 1990 financial crisis, the Japanese market itself has delivered low and volatile returns. Counterfactual analysis suggests that, if sustained, recent improvements in corporate governance and economic performance should lead to higher stock market participation.

Keywords: Life Cycle Models, Portfolio Choice, Stock Market Participation, Uninsurable Labor Income Risk, Japanese Portfolios

JEL Classification: E41, G11, G50

Suggested Citation

Aoki, Kosuke and Michaelides, Alexander and Nikolov, Kalin, Understanding Japanese Household Portfolios (May 5, 2021). Available at SSRN: https://ssrn.com/abstract=3832657 or http://dx.doi.org/10.2139/ssrn.3832657

Kosuke Aoki

University of Tokyo ( email )

Hongo 7-3-1
Tokyo, Tokyo 113-0033

Alexander Michaelides (Contact Author)

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR)

United Kingdom

Kalin Nikolov

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314

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