The Participation Reversal Puzzle

Federico Mainardi, Roxana Mihet and Laura Veldkamp
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Federico Mainardi: Columbia University - Columbia Business School, Finance
Roxana Mihet: Swiss Finance Institute - HEC Lausanne
Laura Veldkamp: Columbia University - Columbia Business School; National Bureau of Economic Research (NBER)

No 26-42, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Risky-asset participation rose in the 1990s, then reversed after the mid-2000s despite continuing declines in financial technology costs. We explain this reversal by separating access costs from data costs. Lower access costs expand participation, but cheaper scalable data lets wealthy investors acquire more information, bid up prices, and reduce risk-adjusted returns for marginal, uninformed households. Using SCF and Addepar portfolio data, we document the model’s crosssectional mechanisms: middle-wealth households exited, while informed investors earned higher returns and held riskier portfolios. Quantitatively, technological change accounts for 49% of the post-2007 participation reversal and explains the post-Covid rise.

Keywords: Portfolio choice; asset pricing; household finance; stock market participation; data economy; information acquisition and learning (search for similar items in EconPapers)
JEL-codes: D83 G11 G12 G14 G51 (search for similar items in EconPapers)
Pages: 69 pages
Date: 2026-05
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