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Stock Market Participation: The Role of Human Capital

Author

Listed:
  • Kartik Athreya

    (Federal Reserve Bank of Richmond)

  • Felicia Ionescu

    (Federal Reserve Board)

  • Urvi Neelakantan

    (Federal Reserve Bank of Richmond)

Abstract

While human capital accumulation is significant early in life, stock market participation is limited. As individuals age, this pattern is reversed. In this paper, we show that—when disciplined to match the substantial heterogeneity observed in earnings—a life-cycle portfolio choice model augmented to allow human capital investment delivers stock market participation over the life-cycle consistent with the data. Key to our finding is that returns to human capital, unlike those to stocks, depend on both individual characteristics and the amount of time invested. Our results also suggest that when human capital accumulation is endogenous, it is short sales constraints on stocks, and not borrowing constraints, that limit engagement with the stock market. (Copyright: Elsevier)

Suggested Citation

  • Kartik Athreya & Felicia Ionescu & Urvi Neelakantan, 2023. "Stock Market Participation: The Role of Human Capital," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 47, pages 1-18, January.
    • Handle: RePEc:red:issued:18-378
    DOI: 10.1016/j.red.2021.12.002
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    Cited by:

    1. Yongsung Chang & Jay Hong & Marios Karabarbounis & Yicheng Wang & Tao Zhang, 2022. "Income Volatility and Portfolio Choices," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 44, pages 65-90, April.
    2. Kartik B. Athreya & Felicia Ionescu & Urvi Neelakantan & Ivan Vidangos, 2020. "Who Values Access to College?," Richmond Fed Economic Brief, Federal Reserve Bank of Richmond, issue 20-03, pages 1-5, March.
    3. Yongsung Chang & Jay Hong & Marios Karabarbounis & Yicheng Wang & Tao Zhang, 2022. "Income Volatility and Portfolio Choices," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 44, pages 65-90, April.
    4. Kartik Athreya & Felicia Ionescu & Ivan Vidangos & Urvi Neelakantan, 2018. "Investment Opportunities and Economic Outcomes: Who Benefits From College and the Stock Market?," 2018 Meeting Papers 1151, Society for Economic Dynamics.
    5. Duraj, Kamila & Grunow, Daniela & Chaliasos, Michael & Laudenbach, Christine & Siegel, Stephan, 2024. "Rethinking the stock market participation puzzle: A qualitative approach," IMFS Working Paper Series 210, Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS).

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    More about this item

    Keywords

    Financial Portfolios; Human Capital Investment; Life-cycle;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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