Abstract
Relatively few people participate in the stock market. We investigate whether getting employee stocks as part of one’s compensation makes people more likely to actively invest in stocks. We find the probability of actively participating in the stock market increases by 15% for those who have been given employee stocks. This lends strong support to cognitive costs in stock market entry. We further find that people predominantly increase direct stock holdings as opposed to indirect holdings via mutual funds. Despite the significant spillover effects from holding employee stocks and an overall larger fraction of individual wealth being invested into stocks, it does not result in well diversified investing.
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