Abstract
English Abstract: This paper studies the impact of cognitive abilities and social trust on stock market ownership decisions. We set up a theoretical framework based on the portfolio choice model and find that these two distinct channels not only contribute to lowering the threshold of investment in stocks, but also help to increase the optimal proportion invested in stocks. Exploiting the survey data from China Family Panel Studies in 2012, we find that, all other things equal, cognitive abilities and social trust can significantly add to the possibility of households’ participation in stock market, and conditional on participation, the proportion invested in stocks is higher. These results are robust to different models and samples. Our research provides a beneficial perspective to understand the limited stock market participation and deepen the reforms of Chinese capital markets.
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