Stock Market Participation: The Role of Human Capital, joint with Kartik Athreya and Urvi Neelakantan [in RuW 4.202]

Category: Money and Macro Brown Bag Seminar, Frankfurt Macro Seminar
When: 02 November 2017
, 11:00
 - 12:30
Where: RuW 4.202
Speaker: Felicia Ionescu (Board of Governors of the Federal Reserve System)

Abstract

Participation in the stock market is limited, especially early in life.

By contrast, human capital investment is widespread, especially early

in life. Returns to equity are invariant across households, while returns

to human capital vary. We demonstrate in this paper that once human

capital investment is allowed for and, critically, disciplined to match

observed dispersion in earnings, a standard model of portfolio choice

delivers stock market participation rates consistent with the data over

the entire life cycle. Moreover, we show that endogenizing human cap-

ital alters the role of borrowing costs and short sales constraints in

limiting stock market participation.

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