Working Paper: CEPR ID: DP15370
Authors: Yosef Bonaparte; George Korniotis; Alok Kumar
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: nonretirement accounts; ownership turnover; trading costs; PSID; SCF
JEL Codes: D14; G11; G12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| negative income shocks (F61) | market exits (L17) |
| positive income shocks (E25) | market entries (L17) |
| income risk (G52) | equity ownership turnover (G32) |
| increases in income (E25) | reduce exit probabilities (C41) |
| increases in income (E25) | increase entry probabilities (C11) |
| idiosyncratic income shocks (D89) | equity ownership turnover (G32) |