Portfolio Inertia and Stock Market Fluctuations

46 Pages Posted: 2 Jun 2006 Last revised: 30 Sep 2009

See all articles by Yannis Bilias

Yannis Bilias

Athens University of Economics and Business

Dimitris Georgarakos

European Central Bank (ECB) - Directorate General Research; Center for Financial Studies (CFS)

Michael Haliassos

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

Multiple version iconThere are 3 versions of this paper

Date Written: September 23, 2009

Abstract

Existing studies of household stock trading using administrative data offer conflicting results: discount brokerage accounts exhibit excessive trading, while retirement accounts show inactivity. This paper uses population-wide data from PSID and SCF to examine the overall extent of household portfolio inertia in participation and trading and its link to household characteristics and stock market movements. We document considerable portfolio inertia, linked to characteristics (e.g. low education or limited resources), but less so to index movements. The downswing seems to have encouraged staying out, rather than getting out of the market. We find important differences in trading patterns of the small minority with brokerage accounts relative to the population; and small fractions of owners’ wealth in those accounts. Our findings strengthen the case for default options in retirement accounts and for funds with built-in trading provisions. While households did not overreact to the downswing through massive sales or exits, this seems more a manifestation of widespread inertia than of optimal response to stock market fluctuations.

Keywords: Stockholding, Portfolio inertia, stock trading, household portfolios

JEL Classification: G11, E21

Suggested Citation

Bilias, Yannis and Georgarakos, Dimitris and Haliassos, Michael, Portfolio Inertia and Stock Market Fluctuations (September 23, 2009). CFS Working Paper No. 2006/14. Available at SSRN: https://ssrn.com/abstract=905872 or http://dx.doi.org/10.2139/ssrn.905872

Yannis Bilias

Athens University of Economics and Business ( email )

76 Patission Street
Athens, 104 34
Greece

Dimitris Georgarakos

European Central Bank (ECB) - Directorate General Research ( email )

Sonnemannstrasse 20
Frankfurt am Main, 60314
Germany

Center for Financial Studies (CFS) ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

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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