What drives stock market participation? The role of institutional, traditional, and behavioral factors

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Abstract

We analyze stock market participation in 19 European countries, providing a composite view of the interplay and relative importance of established participation drivers. We jointly control for nearly all relevant drivers found in prior studies, which tend to introduce one novel variable at a time and often omit risk-aversion. Excellent full model predictive power decomposes into institutional (country) fixed effects (30%), traditional individual-level variables (50%), and more recently identified behavioral variables (20%). We sketch a hierarchical framework where factors’ effects vary by agents’ proneness to participate. We also challenge and complement existing interpretations given to sociability, IQ, trust, and life experiences.
Original languageEnglish
Article number106743
JournalJOURNAL OF BANKING AND FINANCE
Volume148
Early online date5 Dec 2022
DOIs
Publication statusPublished - Mar 2023
MoE publication typeA1 Journal article-refereed

Keywords

  • Household finance
  • Stock market participation
  • Investor behavior
  • Financial decision-making

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