Household Stock Market Participation: Learning from Pension Fund Asset Allocation

Abstract

The global shift towards defined contribution pension schemes significantly increases households' exposure to equity markets through their pension savings. Does this shift also influence households' non-pension investment choices, and if so, why? We present evidence demonstrating that after an increase in the stock market exposure of their pension plans, households are more likely to subsequently invest in equities through their non-pension savings, a finding with implications for the depth of equity markets. We interpret our results within the framework of a simple model, illustrating how equity exposure via pension savings can lower barriers to stock market participation for non-pension investments.

Keywords: household finance, stock market participation, pension savings, defined contribution JEL: D14, G11, G23, G41, G51