Journal of Financial Economics Vol. 139 No. 1 2021
Windfall gains and stock market participation
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.
- DOI
- 10.1016/j.jfineco.2020.07.014
- Volume
- 139
- Issue
- 1
- Pages
- 57-83
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref