Stock Market Participation and Pension Reform

28 Pages Posted: 30 Aug 2006

See all articles by Massimo Massa

Massimo Massa

INSEAD - Finance

Anders Karlsson

Stockholm University - Department of Corporate Finance

Andrei Simonov

Michigan State University - Eli Broad Graduate School of Management; Russian Presidential Academy of National Economy and Public Administration (RANEPA); Centre for Economic Policy Research (CEPR)

Date Written: August 2006

Abstract

We study how the introduction of a defined contribution market based retirement system affects the propensity of the investor to participate in the stock market. By using data on the "Swedish experiment", we focus on the decision to invest directly in stocks and we see how it changes once the households are allowed to participate to the new pension system. We show that, the introduction of the possibility to invest in retirement funds increases the probability of stock market participation. That is, an individual that did not participate in the stock market has a higher probability of entering it once he has been presented with the new pension scheme. Moreover, the individuals who are more likely to enter the stock market are the ones who make a deliberate portfolio choice for the retirement money. This finding is not consistent with investors perceiving the investment in retirement accounts as a close substitute to investment in equity. Quite the contrary, it suggests that being induced to choose among different pension funds does "educate" the individual, inducing him to participate in the stock market.

Keywords: Stock market participation, crowding out, pension reform

JEL Classification: G11, G14

Suggested Citation

Massa, Massimo and Karlsson, Anders and Simonov, Andrei, Stock Market Participation and Pension Reform (August 2006). Available at SSRN: https://ssrn.com/abstract=927389 or http://dx.doi.org/10.2139/ssrn.927389

Massimo Massa (Contact Author)

INSEAD - Finance ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
France
+33 1 6072 4481 (Phone)
+33 1 6072 4045 (Fax)

Anders Karlsson

Stockholm University - Department of Corporate Finance ( email )

School of Business
SE-106 91 Stockholm
Sweden
+46 8 162180 (Phone)
+46 8 153054 (Fax)

Andrei Simonov

Michigan State University - Eli Broad Graduate School of Management ( email )

645 N. Shaw Lane, 321 Eppley Center
East Lansing, MI 48824-1122
United States

HOME PAGE: http://www.andreisimonov.com

Russian Presidential Academy of National Economy and Public Administration (RANEPA) ( email )

Vernadskogo Prospect 82
Moscow, 119571
Russia

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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