Uncovering asset market participation from household consumption and income

Veronika Czellar, René Garcia and François Le Grand

Journal of Econometrics, 2025, vol. 248, issue C

Abstract: We propose an asset pricing model featuring time-varying limited participation in both bond and stock markets and household heterogeneity. Households participate in financial markets with a certain probability that depends on their individual income and on asset market conditions. We use indirect inference to uncover individual asset market participation from individual consumption data and asset prices. Our model very accurately reproduces the proportions of stockholders in the Survey of Consumer Finances over three-year intervals, provides a reasonable estimate of stock market participation costs, and is able to price characteristic-based stock portfolios with the top decile of households identified as stockholders.

Keywords: Limited participation; Household-level consumption distribution; Heterogeneity; Indirect inference; Marginal propensity to consume; Stock market participation cost (search for similar items in EconPapers)
JEL-codes: C53 C58 E21 E47 G17 G51 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:248:y:2025:i:c:s0304407624002124

DOI: 10.1016/j.jeconom.2024.105867

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