TY - JOUR
T1 - Windfall gains and stock market participation
AU - Briggs, Joseph
AU - Cesarini, David
AU - Lindqvist, Erik
AU - Östling, Robert
N1 - Funding Information:
This paper is part of a project hosted by the Research Institute of Industrial Economics (IFN). We are grateful to IFN director Magnus Henrekson for his strong support of the project and to Marta Benkestock for superb administrative assistance. We thank Steffen Andersen, Dan Benjamin, Claudio Campanale, David Laibson, Annette Vissing-J?rgensen, Enrichetta Ravina, Paolo Sodini, and Roine Vestman as well as seminar participants at NYU Stern, IFN, Institute for International Economic Studies, London Business School, Copenhagen Business School, the Federal Reserve Bank of New York, the Federal Reserve Board of Governors, University of Southern California, the 2015 NBER SI (Household Finance), and the 2015 SED for helpful comments and Joel Becker and Nancy Wang for research assistance. We gratefully acknowledge financial support from the Alfred P. Sloan Foundation through the NBER Household Finance small grant program (22-2382-13-1-33-003), the NSF (1326635), the Swedish Council for Working Life and Social Research (2011-1437), the Swedish Research Council (B0213903), Riksbankens Jubileumsfond (P15-0615:1), and Handelsbanken's Research Foundations (P2011:0032:1). The views expressed herein are those of the authors and do not necessarily reflect the views of the Federal Reserve Board of Governors.
Funding Information:
This paper is part of a project hosted by the Research Institute of Industrial Economics (IFN). We are grateful to IFN director Magnus Henrekson for his strong support of the project and to Marta Benkestock for superb administrative assistance. We thank Steffen Andersen, Dan Benjamin, Claudio Campanale, David Laibson, Annette Vissing-Jørgensen, Enrichetta Ravina, Paolo Sodini, and Roine Vestman as well as seminar participants at NYU Stern, IFN, Institute for International Economic Studies, London Business School, Copenhagen Business School, the Federal Reserve Bank of New York, the Federal Reserve Board of Governors, University of Southern California, the 2015 NBER SI (Household Finance), and the 2015 SED for helpful comments and Joel Becker and Nancy Wang for research assistance. We gratefully acknowledge financial support from the Alfred P. Sloan Foundation through the NBER Household Finance small grant program ( 22-2382-13-1-33-003 ), the NSF ( 1326635 ), the Swedish Council for Working Life and Social Research ( 2011-1437 ), the Swedish Research Council ( B0213903 ), Riksbankens Jubileumsfond ( P15-0615:1 ), and Handelsbanken’s Research Foundations (P2011:0032:1). The views expressed herein are those of the authors and do not necessarily reflect the views of the Federal Reserve Board of Governors.
Publisher Copyright:
© 2020
PY - 2021/1
Y1 - 2021/1
N2 - We exploit the randomized assignment of lottery prizes in a large administrative Swedish data set to estimate the causal effect of wealth on stock market participation. A $150,000 windfall gain increases the stock market participation probability by 12 percentage points among prelottery nonparticipants but has no discernible effect on prelottery stock owners. A structural life cycle model significantly overpredicts entry rates even for very high entry costs (up to $31,000). Additional analyses implicate pessimistic beliefs regarding equity returns as a major source of this overprediction and suggest that both recent and early-life return realizations affect beliefs.
AB - We exploit the randomized assignment of lottery prizes in a large administrative Swedish data set to estimate the causal effect of wealth on stock market participation. A $150,000 windfall gain increases the stock market participation probability by 12 percentage points among prelottery nonparticipants but has no discernible effect on prelottery stock owners. A structural life cycle model significantly overpredicts entry rates even for very high entry costs (up to $31,000). Additional analyses implicate pessimistic beliefs regarding equity returns as a major source of this overprediction and suggest that both recent and early-life return realizations affect beliefs.
KW - Household saving and personal finance
KW - Intertemporal consumer choice
KW - Portfolio choice and investment decisions
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U2 - 10.1016/j.jfineco.2020.07.014
DO - 10.1016/j.jfineco.2020.07.014
M3 - Article
AN - SCOPUS:85090969247
VL - 139
SP - 57
EP - 83
JO - Journal of Financial Economics
JF - Journal of Financial Economics
SN - 0304-405X
IS - 1
ER -