Limited Household Participation in the Stock Market Phenomenon Analysis
LIMITED HOUSEHOLD PARTICIPATION IN THE STOCK MARKET PHENOMENON ANALYSIS
TABLE OF CONTENTS
1. INTRODUCTION 3 2. FACTORS THAT DETERMINE STOCKHOLDING DECISION OF HOUSEHOLDS 4 2.1. Wealth 4 2.2. Intelligence quotient (IQ) and cognitive skills 4 2.3. Education 4 2.4. Country 4 2.5. Information availability and ease to trade 6 2.6. Market trust 6 2.7. Age 7 2.8. Marital status 7 2.9. Sociability (social interaction) 8 2.10. Personal values 9 2.11. Life satisfaction 9 2.12. Health 10 2.13. Risk aversion 10 3. CONCLUSIONS 12 4. REFERENCES 13
1. INTRODUCTION
There are a lot of researches made to investigate the reasons why households participation in the stock market is relatively low. According to the numbers, only 21% of EU households participate in stockholding (European Survey of Consumer Finances, 2009). This looks irrational because the majority of the society members do not capture their chance to win additional benefits from their wealth in the stock market.
The purpose of this exploratory research is to provide general insights about current status of households stock market participation and explain the variables that have effects on stockholding decision by households. Currently, the households investment level can be treated as market inefficiency due to irrational or unconscious households behavior. However, there is a number of external factors that influence the decision making in this field too.
The statistics from variuos countries imply differences even among highly developed countries with similar GDP per capita like Italy with 14% and UK with 26% households stockholding level (European Survey of Consumer Finances, 2009). This means that there are externalities that lead to such differences and not just irrational households behavior determine the situation. To draw the full picture, this research focuses on both types of factors – internal and external. The following chapters include short analysis of
TABLE OF CONTENTS
1. INTRODUCTION 3 2. FACTORS THAT DETERMINE STOCKHOLDING DECISION OF HOUSEHOLDS 4 2.1. Wealth 4 2.2. Intelligence quotient (IQ) and cognitive skills 4 2.3. Education 4 2.4. Country 4 2.5. Information availability and ease to trade 6 2.6. Market trust 6 2.7. Age 7 2.8. Marital status 7 2.9. Sociability (social interaction) 8 2.10. Personal values 9 2.11. Life satisfaction 9 2.12. Health 10 2.13. Risk aversion 10 3. CONCLUSIONS 12 4. REFERENCES 13
1. INTRODUCTION
There are a lot of researches made to investigate the reasons why households participation in the stock market is relatively low. According to the numbers, only 21% of EU households participate in stockholding (European Survey of Consumer Finances, 2009). This looks irrational because the majority of the society members do not capture their chance to win additional benefits from their wealth in the stock market.
The purpose of this exploratory research is to provide general insights about current status of households stock market participation and explain the variables that have effects on stockholding decision by households. Currently, the households investment level can be treated as market inefficiency due to irrational or unconscious households behavior. However, there is a number of external factors that influence the decision making in this field too.
The statistics from variuos countries imply differences even among highly developed countries with similar GDP per capita like Italy with 14% and UK with 26% households stockholding level (European Survey of Consumer Finances, 2009). This means that there are externalities that lead to such differences and not just irrational households behavior determine the situation. To draw the full picture, this research focuses on both types of factors – internal and external. The following chapters include short analysis of
References: 1. James P. Dow, Jr., “Age, investing horizon and asset allocation”, 2008 2 3. Sule Alan, “Entry Costs and Stock Market Participation Over the Life Cycle”, 2006 4 5. Luigi Guiso, Paola Sapienza and Luigi Zingales, “Trusting the Stock Market”, 2008 6 7. Mark Grinblatt, Matti Keloharju Juhani Linnainmaa, “IQ and Stock Market Participation”, 2011 8 9. Elina Laakso, “Stock market participation and household characteristics in Europe”, 2010 10 11. Jeffrey R. Brown, Zoran Ivković, Paul A. Smith, Scott Weisbenner, „Neighbors Matter:Causal Community Effects and Stock Market Participation“, 2006 12 13. Kaustia, M., Torstila, S. „Stock market aversion? Political preferences and stock market participation.“, 2010 14 15. George Korniotis, „Does Investment Skill Decline due to Cognitive Aging or Improve with Experience?“, 2007 16 17. Edwards R.D., „Health Risk and Portfolio Choice“, 2005 18 19. Christiansen C., Rangvid J., Joensen J. S., “Fiction or Fact: Systematic Gender Differences in Financial Investments?”, 2010 20 21. Sule Alan, „Entry Costs and Stock Market Participation Over the Life Cycle“, 2006 22 23. Rui Yao, Deanna L. Sharpe, Feifei Wang, „Decomposing the age effect on risk tolerance“, 2010 24