Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 1092: Windfall Gains and Stock Market Participation

Joseph Briggs (), David Cesarini (), Erik Lindqvist () and Robert Östling ()
Additional contact information
Joseph Briggs: New York University
David Cesarini: New York University, Postal: and Research Institute of Industrial Economics (IFN), Stockholm, Sweden
Erik Lindqvist: Stockholm School of Economics, Postal: and Research Institute of Industrial Economics (IFN), Stockholm, Sweden
Robert Östling: Institute for International Economic Studies, Stockholm University

Abstract: We estimate the causal effect of wealth on stock market participation using administrative data on Swedish lottery players. A $150,000 windfall gain increases stock ownership probability among pre-lottery non-participants by 12 percentage points, while pre-lottery stock holders are unaffected. The effect is immediate, seemingly permanent and heterogeneous in intuitive ways. Standard lifecycle models predict wealth effects far too large to match our causal estimates under common calibrations. Additional analyses suggest a limited role for explanations such as procrastination or real-estate investment. Overall, results suggest that "nonstandard" beliefs or preferences contribute to the nonparticipation of households across many demographic groups.

Keywords: Stock market participation; Portfolio choice; Household finance

JEL-codes: D10; G02; G11

44 pages, October 28, 2015

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