Inheritance and Stockholding: The Role of Expectations

Marc-André Luik () and Salland Jan ()
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Salland Jan: Chair of Political Economy and Empirical Economics, Helmut Schmidt University, University of the German Federal Armed Forces, Hamburg, Germany

Review of Economics, 2021, vol. 72, issue 1, 1-28

Abstract: This paper uses data from the Health and Retirement Study to investigate the role of inheritances for stockholding. Individual heir fixed-effects estimates show that an inheritance receipt increases subsequent stock market participation. The respective magnitude of this shift is higher for large and fully anticipated receipts, whereas it seems to be largest for fully but larger-than-expected transfers. Generally, our effects are driven by households entering the stock market. Also, a less pre-inheritance liquidity constrained household shows higher post-inheritance stock ownership probability. This suggests, inheritance size as well as receipt and size anticipation are determinants for stockholding. In the context of stock market participation, our results highlight considerable heir and transfer heterogeneity which can have important implications for bequest taxation and economic welfare. By means of the intergenerational transmission of inequality and socio-economic status via the ‘wealth channel’, households not only benefit from transfer receipt but also from later capital gains, due to stock market participation.

Keywords: expectations; inheritance; portfolio choice; investor behavior (search for similar items in EconPapers)
JEL-codes: D14 D31 G11 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1515/roe-2021-0009

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