Income Risk and Stock Market Entry/Exit Decisions

George Korniotis, Yosef Bonaparte and Alok Kumar

No 15370, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This study examines the stock market entry and exit decisions of U.S. households. We find that a significant portion of households enters or exits from their non-retirement investment accounts biennially. Empirical evidence indicate that income risk affects equity ownership turnover. A portfolio choice model with an income process extracted from survey data shows that idiosyncratic income shocks are more important for dynamic equity ownership decisions than aggregate stock market risk. The model yields realistic estimates for the coefficient of relative risk aversion (= 3.09) and the discount factor (= 0.97).

Keywords: Non-retirement accounts; Ownership turnover; Trading costs; Psid; Scf (search for similar items in EconPapers)
JEL-codes: D14 G11 G12 (search for similar items in EconPapers)
Date: 2020-10
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