Is the use of unpublicized information that an individual gains from the course of his or her job to benefit from fluctuations in the stock market?

Under a Creative Commons license

Open access

Abstract

We exploit the randomized assignment of lottery prizes in a large administrative Swedish data set to estimate the causal effect of wealth on stock market participation. A $150,000 windfall gain increases the stock market participation probability by 12 percentage points among prelottery nonparticipants but has no discernible effect on prelottery stock owners. A structural life cycle model significantly overpredicts entry rates even for very high entry costs (up to $31,000). Additional analyses implicate pessimistic beliefs regarding equity returns as a major source of this overprediction and suggest that both recent and early-life return realizations affect beliefs.

Keywords

Household saving and personal finance

Intertemporal consumer choice

Portfolio choice and investment decisions

JEL classification

D14

D15

G11

G51

Published by Elsevier B.V.