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Board of Governors of the Federal Reserve System (US)
Finance and Economics Discussion Series
Stock Market Investment: The Role of Human Capital
AbstractParticipation 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 constant across households, while returns to human capital vary. The contribution of this paper is to demonstrate that once human capital investment is allowed for and, critically, disciplined to match observed dispersion in earnings, an entirely 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 capital strongly alters the role of borrowing costs in limiting stock market participation.
Cite this item
Kartik B. Athreya & Felicia Ionescu & Urvi Neelakantan, Stock Market Investment: The Role of Human Capital, Board of Governors of the Federal Reserve System (US), Finance and Economics Discussion Series 2015-65, 14 Jun 2015, revised 20 Jun 2016.
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
Keywords: Human capital investment; Life-cycle; Financial portfolios
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