Stock market optimism and participation cost: a mean-variance estimation

Andrea Tiseno () and Monica Paiella
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Andrea Tiseno: Banca D'Italia public

No 714, 2006 Meeting Papers from Society for Economic Dynamics

Abstract: Using Italian household data we jointly estimate the yearly cost of participating to the stock market and the cross sectional distribution of optimism about excess returns of stocks over bonds. Using mean-variance analysis we derive individual efficient portfolio allocation rules, as functions of amount invested and optimism, which provide a structural latent variable model. The observed heterogeneity in amounts invested and in risky portfolio allocations delivers identification: we estimate a yearly cost of participation of about 100 euro and a standard deviation of 30% in optimism

Keywords: heterogeneous household portfolios; mean-variance frontier; participation cost; expectation error (search for similar items in EconPapers)
JEL-codes: D12 D14 G11 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fmk
Date: 2006-12-03

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Related works:
Working Paper: Stock market optimism and participation cost: a mean-variance estimation (2004)
Working Paper: Stock market optimism and participation cost: a mean-variance estimation (2005)
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Persistent link: http://EconPapers.repec.org/RePEc:red:sed006:714

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