Structural estimation of stock market participation costs

Natalia Khorunzhina

Journal of Economic Dynamics and Control, 2013, vol. 37, issue 12, 2928-2942

Abstract: 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.

Keywords: Household Finance; Stock Market Participation; Investor Heterogeneity; Dynamic Discrete Choice Models (search for similar items in EconPapers)
JEL-codes: D14 D91 G11 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (33)

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Related works:
Working Paper: Dynamic Stock Market Participation of Households (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:37:y:2013:i:12:p:2928-2942

DOI: 10.1016/j.jedc.2013.08.011

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