Household Stock Market Participation Research Articles

Does community resilience affect household asset portfolio choices?

AbstractThis paper identifies a positive (negative) relationship between community resilience and household stock market participation (deposit flows). These relationships are less pronounced for higher‐income and married households, indicating an income channel and a marriage channel, respectively. Furthermore, compared to white and Asian households, black households are more sensitive to the effects of community resilience on household investments and deposit flows. Overall, our findings suggest that improvements in people's preparedness for, resilience against, and recovery from potential hazardous events and natural disasters shift households' asset portfolio choices from safe savings to risky stock investments.

Social support and household stock market participation

This study investigates the relationship between social support and stock market participation using data from the China Household Finance Survey (CHFS). Both intangible and tangible dimensions of social support are explored to examine their impact on stock market participation decisions. The empirical findings demonstrate that both support dimensions (i.e., intangible and tangible) would positively influence stock market participation, and intangible support has a greater impact as compared to tangible support. Moreover, this paper offers physical health and mental happiness to explain the mechanisms of social support.

Accounting Quality and Household Stock Market Participation

SYNOPSISRecent research documents that there is significant variation in stock market participation by state and suggests that there may be state-specific factors that determine stock market participation of U.S. households. Using household survey data, we examine how state-level, public-company accounting quality affects households’ stock market participation decisions. We find that households residing in states where local public companies have better accounting quality are more likely to invest in stocks. Also, those households invest greater amounts of their wealth in the stock market. Furthermore, we present some evidence that accounting quality affects stock market participation through local press coverage. Additional cross-sectional tests show that the effect of accounting quality on stock market participation is more pronounced among less affluent and less educated households, consistent with prior findings that familiarity with and trust in the stock market are more important for those types of households to make stock investments.JEL Classifications: D14; G11; M41.

Military experience and household stock market participation: Evidence from China

This paper examines the relationship between military experience and household stock market participation. Using data from the 2010 wave of China Family Panel Studies (CFPS), we find that the military experience promotes the households participating in the stock market. We further investigate how military experience affects a household investment decision. The results show that the level of risk-taking and social trust of military households mainly drives the positive nexus. Moreover, the length of military service rather than the age affects household equity investment decisions. We also find that the positive relationship is more prominent in high-income households, and low-education households.

Broadband internet and stock market participation

This paper examines the effect of broadband Internet on household stock market participation. By exploiting the expansion of broadband in the U.S. from 1999 to 2008, we find that the availability of broadband in a household's zip code significantly increases the likelihood of stockholding and the share of wealth invested in stocks. Moreover, this effect operates through a higher tendency to follow the stock market, indicating that broadband access reduces the information cost associated with stockholding. The effect of broadband access concentrates among people with high socioeconomic status. By contrast, the arrival of broadband has little impact on the portfolio choice and stock market following of people with low socioeconomic status, who most need to improve wealth accumulation. Our study sheds light on the role of technology development in household finance and the potential distributional effect of technology diffusion.

Does regional gender inequality affect stock market participation? Evidence from China

In this article, we examine whether regional gender inequality affects a household’s decision to participate in stock market in China. Based on a nationwide micro data, our empirical results show that households in counties with greater gender inequality are less likely to hold risky assets. The results are robust to a number of variations in our empirical models. The negative effect of gender inequality on household stock market participation is stronger for households located in northern China. Moreover, we provide evidence suggestive of the role of the declined social interaction operating through gender inequality.

Religious beliefs and stock market participation: Evidence from urban households in China

This paper investigates how religious beliefs affect urban household stock market participation in China. We use the China Household Finance Survey in 2013 to show that religious beliefs inhibit total stock market participation and its increment. Such a negative effect is significant only for Buddhists and Protestants in China. We provide a new explanation from the perspective of expected utility maximization. Specifically, religious activities crowd out the time spent on improving financial literacy and lower the commercial insurance expenses that reduce risks in an individual’s current life. Our results hold after considering the potential endogeneity problem and various robustness tests.

Geopolitical risk and household stock market participation

I find that the index of geopolitical risk (GPR) is significantly associated with both the extensive and intensive margins of stock market participation decisions. The GPR index subsumes the significance of economic policy uncertainty for stock market participation decisions and has long-lasting effects for up to 12 months. I further investigate the economic channel through which the GPR index is associated with stock market participation. Empirical evidence suggests that it is a link between the GPR index and financial uncertainty that drives the results. However, I do not find evidence supporting the income uncertainty channel.

Household stock market participation in South Africa: the role of financial literacy and social interactions

PurposeOne of the most important phenomena that have been confronted in the field of household finance is the stock market participation puzzle. The puzzle describes the anomaly that the majority of households do not have ownership of stock market products, though empirically stocks give higher expected returns than risk-free assets. The stock market participation rate plays an important role as it has a direct bearing on the equity premium. In this study, the authors aim to investigate how financial literacy and various proxies of social interaction are associated with stock market participation in South Africa.Design/methodology/approachThe study uses probit regression and ordinary least squares using the South African National Income Dynamics survey Wave 5 of 2017 to investigate whether financial literacy and social interaction are significantly associated with stock market participation. The financial literacy index is computed using factor analysis on the responses to the financial literacy questions used in the survey. The authors use three proxies for social interaction, namely membership in a Stokvel, membership in a men's association and membership in a women's association.FindingsThe results reveal that an increase in financial literacy increases the odds of respondents participating in the stock market. Among the control variables, age, race and level of education are significantly associated with stock market participation. When it comes to social interaction, it is belonging to a men's association that is significantly associated with stock market participation. The other proxies for social interaction are insignificantly associated with stock market participation.Originality/valueThe study contributes to the extant literature by using a set of proxies for social interaction that have the potential to influence stock market participation which have not been used in a South African context.

Capital‐constrained loan creation, household stock market participation and monetary policy in a behavioural new Keynesian model

AbstractIn this paper, we incorporate a stock market and a banking sector in a behavioural macro‐finance model with heterogenous and boundedly rational expectations. Households' savings are diversified among bank deposits and stock purchases, and banks' lending to firms is subject to capital‐related deviation costs. We find that households' participation in the stock market, coupled to the existence of a capital‐constrained banking sector affects the transmission of monetary policy to the economy significantly, and that households' deposits act as a critical spill‐over channel between the real and the financial sectors. Further, we relate the deviation costs in the banking sector with the degree of pass‐through of monetary policy shocks. Last, we investigate the performance of a leaning‐against‐the‐wind monetary policy, which targets asset prices concerning macroeconomic and financial stability.

Digital finance, stock market participation and asset allocation of Chinese households

ABSTRACT In this paper, we analyse the relation between the development of digital inclusive finance (DIF) and household stock market participation, as well as asset allocation. Using the digital financial inclusion index developed by Peking University and data from the 2019 China Household Finance Survey, we find that DIF significantly facilitates the probability of stock market participation and the proportion of assets allocating to equities of Chinese households. We use an instrumental variable approach to alleviate the endogeneity problem and find that the benchmark findings remain robust.

Political Uncertainty and Household Stock Market Participation

AbstractUsing microlevel panel data and a difference-in-differences identification strategy, we study the effect of political uncertainty on household stock market participation. We find that households significantly reduce their participation and reallocate funds to safer assets during periods of increased political uncertainty prior to gubernatorial elections. The decline in participation is related to households’ response to elevated asset risk and their incentive to hedge increased labor income risk. In situations where uncertainty remains high after elections, pre-election reduction in participation is only partially reversed.

Political corruption, trust, and household stock market participation

We study how political corruption affects stock market participation among households in China. Our identification strategy exploits recent anticorruption campaigns that reduce households’ exposure to political corruption and within-province variation in lifetime exposure to local corruption. We find that households with higher corruption exposure participate less in the stock market at both the extensive and intensive margins. Removals of top provincial officials during the anticorruption campaign increase the probability of stock market participation by 3 percentage points and households’ net equity purchases and equity share percentage by 13.2 and 0.2 percentage points, respectively. The effect is predominantly driven by the nonpecuniary effect of corruption on households’ trust and perceptions of institutional quality rather than on households’ accumulation of wealth. Our work highlights the negative externalities of political corruption on financial markets.

Geopolitical Risk and Household Stock Market Participation

Geopolitical Risk and Household Stock Market Participation

Why Was There More Household Stock Market Participation During the COVID-19 Pandemic?

Although the nation was experiencing an economic downturn due to the COVID-19 pandemic outbreak, we nonetheless observed an increase in household equity share value relative to both domestic market capitalization and retail investors’ trading volume. In this paper, we aim to interpret the reasons underlying this seemingly unexpected phenomenon. We investigate portfolio choices with stocks, bonds, and life annuities under an inverse S-shaped probability distortion function. The results indicate that people invest more heavily in risky assets and buy more annuities when reducing their savings in risk-free accounts, which is indeed consistent with the reality.

The Impact of Medical Insurance on Household Stock Market Participation: Evidence From China Household Finance Survey.

This paper explores the impact of medical insurance on the possibility of household participation in the stock market and the portfolio share of equity, applying Probit, and Tobit models with the data from China Household Finance Survey (CHFS). The empirical results highlight that participating in medical insurance can significantly increase the possibility of households participating in the stock market and the portfolio share of equity, and have passed the robustness tests, including propensity score matching (PSM), altering estimation methods, replacing explained variables, and eliminating samples. Besides, heterogeneity analysis shows that the impact of medical insurance on household stock market participation is more significant in eastern region, urban areas, and households with higher income level. Further mechanism analysis implies that household participation in medical insurance mainly affects their stock market participation through preventive savings effect. It is necessary to improve the medical insurance system and encourage household participation in stock market so as to further promote financial development in China.

Local IPOs and Household Stock Market Participation

We posit that IPOs of local companies will lead to increased stock market participation. First, local IPOs attract attention to the market, through both increased information production and publicity. Second, local IPOs generate wealth, not just for people associated with the heretofore private company but also for the wider community through local agglomeration effects. Consistent with predictions, we find that local IPOs increase both households’ propensity to own stock and equity holdings as a percent of wealth. Tests of the mechanisms underlying this relation support the attention channel. We find little evidence in support of the wealth channel. Given prior evidence that stock market participation represents a key factor toward building wealth, our findings highlight that the benefits of IPOs extend beyond those people directly involved with the offering.

Number of brothers, risk sharing, and stock market participation

Abstract Siblings are important sources of support. Male siblings, in particular, are valuable extended family resources in patriarchal societies such as China. This paper examines the effects of the number of brothers on household stock market participation in China. We find that having more brothers increases both the probability of stock market participation and the portfolio share in stocks. This positive effect is more pronounced for individuals who face high income risk, suffer from poor health, lack private insurance, and reside in areas with low financial development and high gender discrimination. In addition, the brother effect persists in recent periods. This evidence highlights the importance of informal risk-sharing networks in household investment decisions. Our results imply that demographic changes such as fertility decline might have unnoticed but sizable impacts on household portfolio choice, especially in countries with strong family ties.

Household stock market participation during the great financial crisis

Using the Panel Study of Income Dynamics, this paper studies American households’ stock market participation in 2007–2009, a period that saw a major stock market downswing. After controlling for standard household characteristics, we estimate that the stock ownership in 2009 dropped 3.5 percentage points – a 7% decline – compared to that in 2007. We find evidence that less-educated households, poor households and households with nonwhite household heads are more likely to drop out of the market after the market crash. We also compare the change in the stock ownership during the crisis period with other 2-year periods over 2003–2013.

Time-Varying Background Risk Over the Great Recession

Based on a theory of portfolio choice with non-tradable assets, we estimate perceived background risks immediately before and after the Great Recession from a large representative panel survey of U.S. households. Background risks related to human capital, residential property and proprietary business all reduce risk-taking, but these effects decline over the Great Recession. These declines are driven by perceptions of increased stock market risk rather than changes in covariances between returns on non-tradable assets and stocks. Perceptions of risk-adjusted stock market performance remained unchanged. Our results help to explain why household stock market participation rose following the Great Recession