Do Households Matter for Asset Prices?

Abstract

Contrary to the common assertion that households have little impact on stock prices, we find their relevance is of first order. We quantify their impact using an assetdemand system applied to the complete ownership data for all Norwegian stocks from 2007 to 2020. Households contribute the most to stock market volatility relative to their market share. Even in absolute terms, they come second, surpassed only by institutional investors. Our granular data on households reveal a strong factor structure in household demand: The demand of the rich is distinct from less affluent investors, accounts for the bulk of volatility attributable to households, tilts away from ESG, and is informative about future firm fundamentals. We conclude by using the demand system to measure the profits one can make from trading on household demand shocks.

Keywords: Retail Trading, Portfolio Choice, Asset Demand System, Return Volatility JEL Classification: G11, G12, G50

JEL Classification: G11, G12, G50