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Windfall gains and stock market participation

Joseph Briggs, David Cesarini (), Erik Lindqvist () and Robert Östling ()

Journal of Financial Economics, 2021, vol. 139, issue 1, 57-83

Abstract: We exploit the randomized assignment of lottery prizes in a large administrative Swedish data set to estimate the causal effect of wealth on stock market participation. A $150,000 windfall gain increases the stock market participation probability by 12 percentage points among prelottery nonparticipants but has no discernible effect on prelottery stock owners. A structural life cycle model significantly overpredicts entry rates even for very high entry costs (up to $31,000). Additional analyses implicate pessimistic beliefs regarding equity returns as a major source of this overprediction and suggest that both recent and early-life return realizations affect beliefs.

Keywords: Household saving and personal finance; Intertemporal consumer choice; Portfolio choice and investment decisions (search for similar items in EconPapers)
JEL-codes: D14 D15 G11 G51 (search for similar items in EconPapers)
Date: 2021
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Working Paper: Windfall Gains and Stock Market Participation (2015) Downloads
Working Paper: Windfall Gains and Stock Market Participation (2015) Downloads
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DOI: 10.1016/j.jfineco.2020.07.014

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