Structural Estimation of Stock Market Participation Costs

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This paper develops and estimates a dynamic model of stock market participation, where consumers' decisions regarding stock market participation are influenced by participation costs. The practical significance of the participation costs is considered as being a channel through which financial education programs can affect consumers' investment decisions. Using household data from the Panel Study of Income Dynamics, I estimate the magnitude of the participation cost, allowing for individual heterogeneity in it. The results show the average stock market participation cost is about 4–6% of labor income; however, it varies substantially over consumers' life. The model successfully predicts the level of the observed participation rate and the increasing pattern of stock market participation over the consumers' life cycle.
TidsskriftJournal of Economic Dynamics and Control
Udgave nummer12
Sider (fra-til)2928–2942
StatusUdgivet - dec. 2013


  • Household Finance
  • Stock Market Participation
  • Investor Heterogeneity
  • Dynamic Discrete Choice Models