Participation Constraints in the Stock Market: Evidence from Unexpected Inheritance Due to Sudden Death

By Steffen Andersen, Kasper Meisner Nielsen. 2011

115 citations recorded by the source corpus.

We use a natural experiment to investigate the impact of participation constraints on individuals' decisions to invest in the stock market. Unexpected inheritance due to sudden deaths results in exogenous variation in financial wealth, and allows us to examine whether fixed entry and ongoing participation costs cause non-participation. We have three key findings. First, windfall wealth has a positive effect on participation. Second, the majority of households do not react to sizeable windfalls by entering the stock market, but hold on to substantial safe assets--even over longer horizons. Third, the majority of households inheriting stock holdings actively sell the entire portfolio. Overall, these findings suggest that participation by many individuals is unlikely to be constrained by financial participation costs. The Author 2011. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oup.com., Oxford University Press.

Subfields: Accounting, Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/2388e2c8c19ac390170a019ca44913ca2b243b81

Citations in the corpus

• Socioeconomic Status and Macroeconomic Expectations (2017, unknown): “Standard explanations involve participation costs (Vissing-Jorgensen (2002)), but they still appear to leave a substantial part of the non-participation unexplained (Andersen and Nielsen (2011)).”
• Who Wears the Pants? Gender Identity Norms and Intrahousehold Financial Decision‐Making (2017, unknown): “Recent work using high-quality data from Scandinavian countries has revealed that sizable windfall gains have a relatively small impact on household participation in the equity market (Andersen and Nielsen, 2011; Briggs et al., 2015).”