Working Paper Series, Department of Economics, Copenhagen Business School
Participation Constraints in the Stock Market Evidence from Unexpected Inheritance due to Sudden Death
() and Kasper Meisner Nielsen
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
suggest that participation by many individuals is unlikely to be
constrained by financial participation costs.
Keywords: Stock Market Participation; Household Finance; Portfolio Choice; Sudden Death; Inheritance.; (follow links to similar papers)
JEL-Codes: D80; E20; G10; (follow links to similar papers)
43 pages, March 1, 2010
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