Stock market optimism and participation cost: a mean-variance estimation

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Stock market optimism and participation cost: a mean-variance estimation

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Andrea Tiseno () (Banca D'Italia public)
Monica Paiella

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Monica Paiella

Abstract

Using Italian household data we jointly estimate the yearly cost of participating to the stock market and the cross sectional distribution of optimism about excess returns of stocks over bonds. Using mean-variance analysis we derive individual efficient portfolio allocation rules, as functions of amount invested and optimism, which provide a structural latent variable model. The observed heterogeneity in amounts invested and in risky portfolio allocations delivers identification: we estimate a yearly cost of participation of about 100 euro and a standard deviation of 30% in optimism

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Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 714.

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Date of creation: 03 Dec 2006
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Handle: RePEc:red:sed006:714

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Paper
- Monica Paiella & Andrea Tiseno, 2004. "Stock market optimism and participation cost: a mean-variance estimation," Econometric Society 2004 Latin American Meetings 239, Econometric Society. [Downloadable!]
- Monica Paiella & Andrea Tiseno, 2005. "Stock market optimism and participation cost: a mean-variance estimation," DNB Working Papers 040, Netherlands Central Bank, Research Department. [Downloadable!]

Find related papers by JEL classification:
D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
D14 - Microeconomics - - Household Behavior - - - Personal Finance
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

This paper has been announced in the following NEP Reports:

NEP-ALL-2007-01-13 (All new papers)
NEP-FMK-2007-01-13 (Financial Markets)

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

Merton, Robert C, 1973. "An Intertemporal Capital Asset Pricing Model," Econometrica, Econometric Society, vol. 41(5), pages 867-87, September. [Downloadable!] (restricted)
Panetta, F. & Violi, R., 1999. "Is there an Equity Premium Puzzle in Italy? A Look at Asset Returns, Consumption and Financial Structure Data Over the Last Century," Papers 353, Banca Italia - Servizio di Studi.
Other versions:
- Fabio Panetta & Roberto Violi, 1999. "Is there an Equity Premium Puzzle in Italy? A Look at Asset Returns, Consumption and Financial Structure Data over the Last Century," Temi di discussione (Economic working papers) 353, Bank of Italy, Economic Research Department. [Downloadable!]
Monica Paiella, 2006. "The Foregone Gains of Incomplete Portfolios," CSEF Working Papers 156, Centre for Studies in Economics and Finance (CSEF), University of Salerno, Italy. [Downloadable!]
Other versions:
- Monica Paiella, 2007. "The forgone gains of incomplete portfolios," Temi di discussione (Economic working papers) 625, Bank of Italy, Economic Research Department. [Downloadable!]
- Monica Paiella, 2007. "The Forgone Gains of Incomplete Portfolios," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 20(5), pages 1623-1646. [Downloadable!] (restricted)
Haliassos, Michael & Bertaut, Carol C, 1995. "Why Do So Few Hold Stocks?," Economic Journal, Royal Economic Society, vol. 105(432), pages 1110-29, September. [Downloadable!] (restricted)
Merton, Robert C., 1971. "Optimum consumption and portfolio rules in a continuous-time model," Journal of Economic Theory, Elsevier, vol. 3(4), pages 373-413, December. [Downloadable!] (restricted)
Other versions:
- R. C. Merton, 1970. "Optimum Consumption and Portfolio Rules in a Continuous-time Model," Working papers 58, Massachusetts Institute of Technology (MIT), Department of Economics.

Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Alessandro Bucciol, 2006. "The Roles of Temptation and Social Security in Explaining Individual Behavior," "Marco Fanno" Working Papers 0032, Dipartimento di Scienze Economiche "Marco Fanno". [Downloadable!]

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This page was last updated on 2008-11-20.

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