Situation analysis 3
Research on portfolio theory 4
Variables explaining stockholding 5
Factors for trying to explain the phenomenon 7
At the very basis of this paper is the analysis of the limited household stock market participation phenomenon. The relevance of the issue is discussed through the perspective of the theories of finance with special regard to the Model Portfolio Theory.
Given the point of view of one of the largest stock markets - the market of the United States of America - the phenomenon is first of all presented as deriving from behaviours related to stockholding. The attributes of a typical American stockholder are important to identify in order to make any further conclusions about the causes of the problem.
In later chapters the variables that are used in recent researches to try to explain the phenomenon are presented. Our paper discusses the background risks faced by households and financial literacy in more detail. These were chosen by our team as specifically relevant and probably part of the core causes of limited household stock market participation in the USA.
It is known that a major number of households in the USA do not participate in the stock markets. If to look at the historical patterns of this phenomenon, according to panel study of income dynamics (PSID), which held a sample of 2998 families and was held in 1984, only small percentage of households owned stocks – 27.6% (Mankiw, Zeldes, 1991). For the families which had $100,000 or more liquid assets only 47.7% did own stocks (Mankiw, Zeldes, 1991). Recent studies have estimated that even during the 1990 when there was a major growth in U.S. stock markets, households did not participate in the stock market. Nowadays the things did not change a lot and through all these years many researchers have been struggling to research financial decisions of the firms, whereas talking about financial decisions of the household it is not known much. So what may be the factor which has an effect on participation of households in stock market?
Brunnermeier and Nagel (2006) tried to research different determinants which implies household behavior related to stock market. Despite using different models and approaches they managed to come to similar conclusions towards low participation of households in stock market. Characteristics such as wealth, education and age are the major factors which affect household’s decisions into stock market participation. Speaking about other researches it is worth mentioning Hong, Kubik and Stein (2004) studies which have investigated peer effect as a determinant for participation. They have found that households which interact with their neighbours or from time to time go to churches are more likely to invest in the stock markets than the ones who are not that social. Moreover, one of the factors is argued by Hiroyuki Kasahara and Katsumi Shimotsu...