Faculty of Economics and Business Administration Publications Database

Why Do So Few Hold Stocks?

Bertaut, Carol C.
Volume: 105
Number: 432
Pages: 1110 - 1129
Month: September
ISSN-Print: 0013-0133
Link External Source: Online Version
Year: 1995
Abstract: The authors investigate why 75 percent of U.S. households do not hold stocks despite the equity premium and predictions of expected-utility models. The question is relevant for privatization, asset pricing, and tax progressivity issues. They show that risk aversion per se, heterogeneity of beliefs, habit persistence, time nonseparability, and quantity constraints on borrowing do not account for the phenomenon. A wedge between borrowing and lending rates, and minimum-investment requirements are plausible but empirically weak factors. More promising explanations are inertia and departures from expected-utility maximization. There is also qualified support for nondiversifiable income risk as a contributing factor.