Towards an Explanation of Household Portfolio Choice Heterogeneity: Nonfinancial Income and Participation Cost Structures

Annette Vissing-Jorgensen

No 8884, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The paper uses micro data on income and asset holdings from the Panel Study of Income Dynamics and other US household level data sets to analyze reasons for nonparticipation in the stock market and for heterogeneity in portfolio choice within the set of stock market participants. I find evidence of a positive effect of mean nonfinancial income on the probability of stock market participation and on the proportion of wealth invested in stocks conditional on being a participant. The volatility of nonfinancial income is found to have a negative impact on these two quantities. However, there is no evidence of an effect of the correlation of nonfinancial income with the stock market return on portfolio choice. Three different costs of stock market participation are considered, a fixed transactions cost, a proportional transactions cost, and a per period participation cost. I find evidence of structural state dependence in the stock market participation decision supporting the importance of fixed transactions costs. This is supported by findings of higher trading frequencies for high wealth households. Based on a simple model of the benefits of stock market participation I estimate that a per period stock market participation cost of just 50 dollars is sufficient to explain the choices of half of stock market nonparticipants.

JEL-codes: G11 G12 (search for similar items in EconPapers)
Date: 2002-04
Note: AP
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (218)

Published as Vissing-Jørgensen, Annette. “Perspectives on Behavioral Finance: Does ’Irrationality’ Disappear withWealth? Evidence from Expectations and Actions." NBER Macroeconomics Annual, 2003.

Downloads: (external link)
http://www.nber.org/papers/w8884.pdf (application/pdf)

Related works:
Working Paper: Towards an Explanation of Household Portfolio Choice Heterogeneity: Nonfinancial Income and Participation Cost Structures (2000)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:8884

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w8884

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().