Why Do so Few Hold Stocks?

Posted: 2 May 2000

See all articles by Carol C. Bertaut

Carol C. Bertaut

Board of Governors of the Federal Reserve System

Michael Haliassos

Goethe University Frankfurt - House of Finance; Goethe University Frankfurt - Faculty of Economics and Business Administration; CEPR; NETSPAR

Abstract

We investigate why the majority of United States households do not hold stocks despite the equity premium and predictions of expected-utility models. The question is relevant for privatisation, asset pricing, and tax progressivity issues. We show that risk aversion per se, heterogeneity of beliefs, habit persistence, time nonseparability, and quantity constraints on borrowing do not account for the phenomenon. A wedge between borrowing and lending rates, and minimum-investment requirements are plausible but empirically weak factors. More promising explanations are inertia and departures from expected- utility maximization. There is also qualified support for nondiversifiable income risk as a contributing factor.

JEL Classification: G11, E44

Suggested Citation

Bertaut, Carol C. and Haliassos, Michael, Why Do so Few Hold Stocks?. THE ECONOMIC JOURNAL, Vol 105 No 432, September 1995. Available at SSRN: https://ssrn.com/abstract=5996

Carol C. Bertaut

Board of Governors of the Federal Reserve System ( email )

20th and C Streets, NW
Washington, DC 20551
United States

Michael Haliassos (Contact Author)

Goethe University Frankfurt - House of Finance

Theodor-W.-Adorno-Platz 3
PF H32
Frankfurt am Main, 60323
Germany

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno-Platz 3
PF H32
Frankfurt am Main, D-60323
Germany

CEPR

London
United Kingdom

NETSPAR ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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