Abstract
We propose a life-cycle model, where individuals facing uninsurable labor income risks choose whether to participate the stock market and make decisions on home-ownership, in an environment with social safety net and the retirement savings system. The model is motivated by the empirical finding that active stock market participation is associated with higher level of education and employment experience in the finance sector. The model exhibits good fit on portfolio choice, home-ownership, consumption pattern in the cross- section and through life-cycle. We find that the lack of stock market access, proxied by a fixed entry cost and variable costs, plays a key role in generating heterogeneous outcome in agent’s wealth accumulation, and therefore, increases wealth inequality.
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