Participation Constraints in the Stock Market: Evidence from Unexpected Inheritance due to Sudden Death

Research output: Working paperResearch

Abstract

We use a natural experiment to investigate the impact of participation constraints on individuals' decisions to invest in the stock market. Unexpected inheritance due to sudden deaths results in exogenous variation in financial wealth and allows us to examine whether fixed entry and ongoing participation costs cause non-participation. We have three key findings. First, windfall wealth has a positive effect on participation. Second, the majority of households do not react to sizeable windfalls by entering the stock market, but hold on to substantial safe assets - even over longer horizons. Third, the majority of households inheriting stock holdings actively sell the entire portfolio. Overall, these findings uggest that participation by many individuals is unlikely to be constrained by financial participation costs.
We use a natural experiment to investigate the impact of participation constraints on individuals' decisions to invest in the stock market. Unexpected inheritance due to sudden deaths results in exogenous variation in financial wealth and allows us to examine whether fixed entry and ongoing participation costs cause non-participation. We have three key findings. First, windfall wealth has a positive effect on participation. Second, the majority of households do not react to sizeable windfalls by entering the stock market, but hold on to substantial safe assets - even over longer horizons. Third, the majority of households inheriting stock holdings actively sell the entire portfolio. Overall, these findings uggest that participation by many individuals is unlikely to be constrained by financial participation costs.
LanguageEnglish
Place of PublicationFrederiksberg
PublisherDepartment of Economics, Copenhagen Business School
Number of pages45
StatePublished - 2010
SeriesWorking Paper / Department of Economics. Copenhagen Business School
Number3-2010

Keywords

  • Stock market participation
  • Household finance
  • Portfolio choice
  • Sudden death
  • Inheritance

Cite this

Andersen, S., & Meisner Nielsen, K. (2010). Participation Constraints in the Stock Market: Evidence from Unexpected Inheritance due to Sudden Death. Frederiksberg: Department of Economics, Copenhagen Business School. Working Paper / Department of Economics. Copenhagen Business School, No. 3-2010
Andersen, Steffen ; Meisner Nielsen, Kasper. / Participation Constraints in the Stock Market : Evidence from Unexpected Inheritance due to Sudden Death. Frederiksberg : Department of Economics, Copenhagen Business School, 2010. (Working Paper / Department of Economics. Copenhagen Business School; No. 3-2010).
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Participation Constraints in the Stock Market : Evidence from Unexpected Inheritance due to Sudden Death. / Andersen, Steffen; Meisner Nielsen, Kasper.

Frederiksberg : Department of Economics, Copenhagen Business School, 2010.

Research output: Working paperResearch

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