Working Paper: NBER ID: w21673
Authors: Joseph S. Briggs; David Cesarini; Erik Lindqvist; Robert Ståhl
Abstract: We estimate the causal effect of wealth on stock market participation using administrative data on Swedish lottery players. A $150,000 windfall gain increases stock ownership probability among pre-lottery non-participants by 12 percentage points, while pre-lottery stock holders are unaffected. The effect is immediate, seemingly permanent and heterogeneous in intuitive ways. Standard lifecycle models predict wealth effects far too large to match our causal estimates under common calibrations. Additional analyses suggest a limited role for explanations such as procrastination or real-estate investment. Overall, results suggest that “nonstandard” beliefs or preferences contribute to the nonparticipation of households across many demographic groups.
Keywords: Wealth; Stock Market Participation; Lottery Players; Causal Effect
JEL Codes: D1; G02; G11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Wealth effect (E21) | Stock market participation (G19) |
| Household characteristics (D19) | Wealth effect (E21) |
| Entry costs (L11) | Stock market participation (G19) |
| Cognitive constraints or non-standard beliefs (D91) | Stock market participation (G19) |
| Wealth shock from lottery winnings (H27) | Stock market participation (G19) |
| Windfall gain of 1 million SEK (G19) | Probability of stock ownership among pre-lottery nonparticipants (H27) |
| Pre-lottery stockholders (G34) | Stock market participation (G19) |